15-Year vs. 30-Year Mortgage

Differences between 15-year and 30-year mortgages

The main difference between a 15-year and 30-year mortgage is how long you have to pay off the loan. A 15-year mortgage is paid off in half the time, which means you’ll make higher monthly payments, but you’ll also pay less interest overall. A 30-year mortgage stretches your payments out, lowering your monthly cost but also increasing the total amount of interest you'll pay.

Generally, 15-year mortgage rates are lower because lenders see these loans as less risky. With a shorter repayment period, there's less time for something to go wrong, so lenders are more confident they’ll be repaid. Thirty-year mortgages, on the other hand, may have slightly higher rates due to the longer repayment timeline. But the lower monthly payments still make them more manageable than 15-year mortgages.

Pros and cons of a 15-year mortgage

A 15-year mortgage can be a solid option if you want to build home equity quickly and save on interest. But make sure you consider the pros and cons before submitting your application.

Advantages of a 15-year mortgage

• Builds equity faster: You’re paying down the principal more aggressively with a 15-year mortgage, which means you’ll build equity faster.
• Lower total interest: Lenders take on less risk with shorter loan terms, so interest rates are typically lower. Plus, since the loan term is shorter, you’re paying much less in interest over the life of the loan.
• Shorter debt repayment timeline: The most obvious advantage of 15-year mortgages is that you’ll be debt-free much sooner than if you were to take out a 30-year loan.
• More options sooner: Since 15-year mortgages allow you to grow your equity faster, you’ll have more flexibility and options if you want to refinance, take out a home equity line of credit or sell the home down the line.

» LEARN: Interest-only home equity lines of credit

Disadvantages of a 15-year mortgage

• Higher monthly payments: Because you're cutting your repayment timeline in half, your monthly payment for a 15-year mortgage will be much higher than that of a 30-year home loan.
• Risk of becoming house poor: If you don’t manage your budget carefully, you could have trouble keeping up with other financial responsibilities due to the higher mortgage payments.
• Harder to qualify for: You may need stronger financials to qualify for a 15-year mortgage due to the higher monthly payments.
• Less financial flexibility: Locking into higher payments every month could limit your ability to invest, save for retirement or handle unexpected costs.

Pros and cons of a 30-year mortgage

A 30-year mortgage is the most common home loan in the U.S. because the lower monthly payments give borrowers more room to manage other expenses. That said, it doesn’t always make financial sense for everyone.

Advantages of a 30-year mortgage

• Lower monthly payments: Spreading the loan over 30 years lowers your monthly mortgage payments, making them easier to manage.
• More flexibility in your budget: Lower payments let you save, invest or deal with surprise expenses more easily.
• Option to make extra payments: Some mortgage lenders may let you pay more toward the principal without charging any penalty fees.
• Ability to afford a more expensive home: Since the monthly payments on a 30-year mortgage are lower, you might qualify for a larger loan amount.

Disadvantages of a 30-year mortgage

• Higher total interest over time: Even with a decent interest rate, committing to a longer loan term means you’ll pay more in interest over time.
• Slower equity buildup: Since more of your early payments are going toward interest, it’ll take you longer to build equity in your home.
• Delayed financial freedom: Unless you pay off your mortgage early, you'll be in debt for a longer period, which can hinder or delay your other financial goals, such as early retirement.

Alternatives to 15-year and 30-year mortgages

15-year and 30-year mortgages are the most common, but they’re not the only options. Some lenders also offer 10-year, 20-year or 25-year loans. These alternative options can be worth considering if your financial situation doesn’t fit neatly into the typical 15- or 30-year mold.

For example, a 20-year mortgage may make more sense if you want a lower interest rate than a 30-year loan and payments that aren’t as high as those on a 15-year term.

How to choose the right mortgage for you

The right mortgage term for you depends on your finances and long-term goals. A 15-year mortgage could be a better option if you want to pay off your mortgage quickly, especially if you’re preparing for an early retirement and want to minimize long-term interest or get out of debt faster. But if you value having extra cash each month for other goals, a 30-year mortgage may make more sense.

If you aren’t sure which option suits you better, use a mortgage calculator to compare monthly payments and total costs between the two options. Run a few scenarios and see how each one fits into your financial plan.

And if you’re drawn to shorter mortgage terms but aren’t sure about committing to the steeper price of a 15-year mortgage, another option would be to get a 30-year mortgage and make biweekly payments. “This way, you can turn your 30-year into a 15-year mortgage in terms of payoff time, but you won’t be locked into the terms of a 15-year mortgage in case you hit a rough patch,” according to Gretchen Newswander, lending manager at Chase Home Lending.

You don’t have to figure all this out on your own. “We always suggest homebuyers (work with) a mortgage professional who can help assess your financial goals and your unique circumstances and make a suggestion of what product works best for your specific scenario,” Newswander said.

» MORE: Choosing a mortgage lender

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