What To Know About A 15- vs 30-Year Mortgage

Want to know if a 15- or 30-year mortgage would work best for you? Learn about the differences between these loans.

Buying a home is one of life’s most exciting milestones, but it’s not something you do on a whim. Taking out a mortgage is a huge decision that’ll significantly impact your financial future. There are many factors to consider, including term duration. Should you go for a 15- or 30-year mortgage? How are they different?

A 30-year fixed-rate mortgage has been the typical path American homebuyers have taken for generations. However, opting for a 15-year term instead can save you thousands over the length of the term, and may be the better choice for some aspiring homeowners. Here’s everything you need to know about 15- vs 30-year fixed-rate mortgages, including the pros and cons, to help you decide.

15- vs 30-Year Fixed Mortgage: Which One Should You Choose?

15- and 30-year mortgages are fixed-rate loans with similar structures. Their monthly principal and interest rates never change regardless of market conditions, offering borrowers stability. While they have fixed rates in common, they also have some notable differences, the main one being their term.

Aside from having a shorter term, 15-year mortgages also have lower interest rates, meaning you’ll pay less interest over the loan’s period. However, you’ll have higher monthly payments due to the shorter loan term. Meanwhile, 30-year mortgages can give you lower monthly payments, but you’ll pay more interest at a higher rate.

Who Should Consider A 15-Year Mortgage?

A 15-year mortgage is an attractive option for those who want to save on interest and payoff their loan faster. However, borrowers need to assess whether they can commit to a higher monthly payment amount.

Is it harder to qualify for a 15-year mortgage? Yes, it’ll be more challenging because of the higher monthly payments – lenders will want to be certain you can comfortably afford the loan.

Who Should Consider A 30-Year Mortgage?

A 30-year mortgage is a great option for borrowers with tighter budgets. Monthly payments are significantly lower than that of 15-year mortgages which means you’ll have more money remaining for other expenses and savings. However, 30 years of interest will add up to a much higher total cost over the life of the loan.

15 vs 30-Year Mortgage Example

The total difference in cost between a 15- and 30-year mortgage can be significant. For example, let’s compare a $300,000 loan with a 30-year mortgage and a 6.90% interest rate to a 15-year fixed-term mortgage with a 6.24% interest rate.

While the monthly payment for the 30-year mortgage is lower, you pay a higher interest rate over a longer duration which greatly increases your total mortgage cost. The 15-year mortgage is the more affordable option in the long run.

Aside from the loan term, there are many other factors to consider when calculating your monthly payment and total mortgage cost, including the downpayment, homeowners insurance, property taxes, and closing costs – which usually range from 3% to 6% of the loan amount.

Once a prospective homeowner explores their loan options, the next steps are getting pre-qualified and pre-approved. What’s the difference between a mortgage pre-qualification and pre-approval? A pre-qualification is the first step, giving you an estimate of how much you can borrow, while a pre-approval involves submitting any credit and financial details the lender requires for an official mortgage application.

Pros & Cons Of 15- & 30-Year Mortgages

Picking between a 15- and 30-year mortgage can be overwhelming. Do you choose lower monthly payments with a higher interest rate like most Americans? Or is it better to go the opposite route?

Here are the pros and cons of these two mortgages to help you make an informed decision.

What Are The Advantages Of A 15-Year Mortgage?

• Long-term savings – Lenders offer lower interest rates on 15-year mortgages because they have a lower risk. It’s also easier for lenders to forecast repayment predictions over 15 years versus a 30-year interval. Thanks to lower interest rates and shorter loan duration, you’ll save thousands of dollars to put toward your other life goals.
• Quicker accrual of home equity – When you pay off your loan more quickly, you also build your home equity faster, which comes with various benefits, like refinancing your loan sooner if interest rates drop. You can also get a home equity loan or home equity line of credit (HELOC) if you need renovation funds down the line. It’s also easier to cancel your private mortgage insurance (PMI) if you have any.
• Homeownership in half the time – You can achieve financial freedom and become a homeowner faster, which lets you boost your savings or redirect your funds to other projects. The 15-year term is also beneficial if you’re nearing retirement and want to cut expenses as soon as possible.

What Are The Disadvantages Of A 15-Year Mortgage?

• Higher monthly payments – A shorter loan term means heftier monthly payments. Consider your budget and lifestyle before committing to this loan. You don’t want to be financially crippled with no funds left for other expenses.
• Harder qualification requirements – Lenders want to ensure you can handle larger monthly payments. That could mean a stricter application process.

What Are The Advantages Of A 30-Year Mortgage?

• Lower monthly payments – With a 30-year mortgage, loan repayment is spread over a much longer period. This significantly reduces monthly payments, allowing you more funds for food, education, utilities, and other essentials.
• Larger, more expensive home – If you have a dream home, you have a better chance of affording it through a 30-year mortgage. You’ll have more time to pay off a larger, more expensive home, which may not be possible with a 15-year mortgage.
• Sizeable tax deduction – Current tax laws allow home buyers to subtract their mortgage interest from their taxes. While 30-year mortgages have higher interest rates, the upside is you can turn that into hefty tax deductions.
• Easier qualification requirements – Lenders are more lenient with 30-year mortgages because of their smaller, and more affordable, monthly payments. More people are eligible for this type of home loan, making it a popular option for homebuyers.

What Are The Disadvantages Of A 30-Year Mortgage?

• Higher interest rate – A 30-year term means spending more time paying interest. In addition, lenders will give you a higher interest rate to cover the risk of a longer term.
• Overborrowing – If you qualify for a higher loan amount, you may be tempted to borrow more than you can afford. Don’t forget, a pricier home often has higher property taxes and maintenance costs.

Find The Best Mortgage For Your Needs At A+ Federal Credit Union

Our team of experts at A+ Federal Credit Union is dedicated to helping members find the best mortgage for their financial needs and goals. We can discuss your options if you’re unsure whether to choose a 15- or 30-year mortgage. We’re also ready to answer technical questions like “What are the current loan rates?” and “What are mortgage points?”

Become an A+FCU member to get the support you need in your home loan journey and beyond, whether it be for purchasing a vehicle, accessing credit for personal needs, or utilizing our free resources and tools to make informed decisions.