15-year vs. 30-year mortgage: Which is the better option?
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Published 10:25 a.m. UTC Nov. 23, 2023
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When you compare home loans, you’ll likely find two standard repayment terms: 30 years and 15 years. Each term has its benefits and drawbacks, so one isn’t necessarily better than the other. The best term for you will depend on your financial situation and goals.
Here’s what to know about 15- vs. 30-year mortgages if you’re trying to decide which option is better.
15-year mortgage overview
A 15-year mortgage is a home loan that you pay off in 15 years. Compared to 30-year mortgages, a 15-year loan often comes with a lower interest rate. Plus, you can get rid of your debt in half the time. While these are certainly benefits, a shorter repayment term means you’ll have higher monthly loan payments. For this reason, it can be challenging to qualify for a 15-year mortgage because the payments may be difficult to afford.
30-year mortgage overview
The major benefit of a 30-year mortgage is that you have lower monthly payments. Opting for a 30-year term instead of a 15-year term could help you keep more money in your pocket each month, allowing you to invest more or use those funds for other purposes. But your interest costs with a 30-year loan will be higher compared to the 15-year term, and it will take longer to build home equity.
15-year vs. 30-year: Key differences
There are some important differences between 15- and 30-year mortgages. Here’s a quick look at how these two options compare.
15-year vs. 30-year mortgage example
To illustrate how costs differ with a 15- vs. 30-year mortgage, let’s consider the following example:
- Borrower A purchases a home for $375,000 with a down payment of 20%, an interest rate of 7% and a term of 15 years. They have a monthly payment of $2,696. Over the life of the loan, Borrower A pays $185,367 in total interest.
- Borrower B also buys a $375,000 house and makes a 20% down payment. They opt for a 30-year mortgage and receive a slightly higher rate of 7.77%. They have a monthly payment of $2,153 and pay $475,218 in total interest over the life of the loan.
Which is right for you?
The right mortgage term for you depends on several factors, including your current debts, monthly budget and financial goals. Here’s when each option could make the most sense.
When to consider a 15-year mortgage
A 15-year mortgage could be a good idea when:
- You want to save on interest. Interest rates on shorter-term loans are generally lower. The shorter payoff timeline means you pay less interest over the life of the loan.
- You don’t have a lot of other debts. This could mean there’s more room in your budget for a higher monthly payment.
- You want to get out of debt quickly. A 15-year mortgage speeds up your repayment timeline.
- You understand the opportunity costs. You’ll have less money for things like discretionary spending, retirement contributions and other financial goals.
When to consider a 30-year mortgage
By contrast, a 30-year mortgage could be a better choice if:
- You can’t afford higher monthly payments. “Opting for a 30-year mortgage over a 15-year one makes sense when you prioritize flexibility in your monthly payments,” says Alexander Suslov, head of capital markets at A&D Mortgage.
- Your income fluctuates. A longer-term mortgage gives you some flexibility — so if your income rises, you can decide whether to put more money toward your principal.
- You have other financial goals. With a lower monthly payment, you have more money to put toward debt payoff, investments, savings goals and vacations.
- You understand the trade-off. With a longer mortgage term, you pay significantly more interest.
Whether a fixed-rate mortgage or adjustable-rate mortgage (ARM) is better depends on your situation. Fixed-rate loans have predictable monthly payments, and their interest rates don’t change over time. Adjustable-rate loans have a set fixed-rate period, after which your rate can fluctuate with the market. Your monthly loan payments could increase or decrease depending on rate changes.
If you want a lower interest rate and plan to stay in your home for a short time, an ARM could make sense. But if you plan to keep your home for many years, a fixed-rate loan may be a better choice.
A 15-year mortgage may be the better option for borrowers with little or no debt and can afford a relatively high monthly payment. If you prefer a lower monthly payment, then a 30-year mortgage is a better choice.
If a conventional 15- or 30-year mortgage doesn’t seem like the best choice, then a 20-year fixed-rate mortgage can be a good compromise. A 40-year mortgage may also be available, but these are rarely a good option because interest costs are very high over the loan’s term.
Mortgages backed by the Federal Housing Administration (FHA loans) or Department of Veterans Affairs (VA loans) may also be worth looking into. These loans are often easier to qualify for than conventional mortgage loans.
Refinancing your mortgage from a 30-year to a 15-year can be worth it, but it depends on interest rates and whether it makes sense for you financially. Alternatively, you could also make extra principal payments toward your 30-year mortgage, which could reduce your loan term by several years. If you go this route, just read the fine print to ensure your mortgage lender doesn’t charge a prepayment penalty.
Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.
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