15 vs. 30-Year Mortgage: Which is best?

August 17, 2021 - 7 min read

15 vs. 30-year mortgage overview

Most borrowers choose a 30-year fixed-rate mortgage, which gives them three decades to pay off their home.

You could also opt for a shorter loan term, such as a 15-year mortgage. This will pay off your loan debt in half the time and likely save tens of thousands in interest. But your monthly payments will increase substantially.

So which is the best choice for you: a 15 or 30-year mortgage? That depends on several factors, including your financial situation, life goals, and what you can afford.

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Is it better to get a 15-year or 30-year mortgage?

For many, a 30-year fixed-rate mortgage loan is the ideal product. That’s because, quite simply, it allows for more affordable monthly payments. The downside is, it can take longer to accumulate equity and pay off your loan.

That’s why some homeowners opt for a shorter loan term in the form of a 15-year mortgage.

“You can pay off the loan twice as quickly, over the life of the loan you pay much less in interest, and you grow home equity at a much faster rate,” says Robert Johnson, professor of finance at Heider College of Business, Creighton University.

That doesn’t mean that a 15-year loan is always the best choice, however.

The main drawback to a 15-year mortgage is that monthly payments are much higher since you have to pay off the same amount in half the time. As a result, many homeowners simply can’t swing the monthly payments.

It’s up to you and your loan officer to compare the costs — and potential savings — of a 15 vs. 30-year mortgage, then chose the right one for your financial situation.

Interest rates for 15-year vs. 30-year mortgages

Traditionally, a 15-year mortgage loan comes with a lower interest rate than a 30-year mortgage. That’s because, by agreeing to pay off the debt more quickly, 15-year borrowers present less risk to mortgage lenders.

“Differences in rates between 30-year and 15-year options have ranged, on average, from 0.5% to 0.75%,” says Rob Heck, head of origination at Morty.

Just look how 15- and 30-year mortgage interest rates compare over the past six months, based on survey data from Freddie Mac:

Monthly mortgage payments for 15 vs. 30-year loans

Mortgage payments on a 15-year loan will likely be several hundred dollars more than for a 30-year loan.

“Imagine you take out a $250,000 loan over 15 years at 2.50%,” says Tom Trott, branch manager with Embrace Home Loans. “Your monthly principal and interest payments will be $1,667.”

On the other hand, “A 30-year mortgage on the same loan amount at 2.99% will trigger monthly payments of $1,053 — $614 less,” he explains.

Of course, the exact payment amounts will depend on your credit score, down payment, interest rate, and other factors. So it’s worth comparing both loan types before you buy to see how your options break down.

Comparing long-term mortgage costs

Finally, you’ll pay much less in total interest costs for a 15-year loan than you would for a 30-year mortgage.

There are two reasons for that. First, because your interest rate is likely to be lower. And second, because you’re not paying interest for as long a time.

Using Trott’s example above, you’d pay around $129,000 in total interest on a 30-year loan as opposed to about $50,000 on a 15-year loan — thus saving over $78,900 with the shorter term.

You can use a mortgage calculator to model your monthly payments and total interest on both loan types to see how they compare.

30-year mortgage pros and cons

Picking a 30-year mortgage can be a smart move for many.

“A 30-year mortgage is the most popular option for homebuyers in the United States. Payments are stretched out over a period twice as long, resulting in lower monthly payments,” says Heck.

“These lower payments make it easier to afford a home or to purchase a larger home and still stay within your budget. It also allows homebuyers to apply the money they are saving toward other household and living expenses,” Heck explains.

The primary disadvantage of a 30-year term is that you are committed to making payments over a longer period. That means you’ll pay much more in interest over the life of the loan and your home equity will build much more slowly.

As a result, if you sell your home before your loan is paid off — especially within the first 5 to 10 years of owning the property — you’ll make a smaller profit.

“Another drawback is that, since your payments are lower than with a 15-year mortgage, you may rationalize that you can commit to buying a bigger home and get yourself into deeper debt for a longer period,” cautions Johnson.

Finally, longer terms usually come with slightly higher interest rates. This contributes to paying more in total interest over the life of your mortgage.

30-Year Mortgage Pros30-Year Mortgage Cons
Lower monthly paymentsMore interest paid over the life of the loan in total
Potentially bigger home buying budget Slightly higher interest rates than 15-year fixed-rate mortgages
More cash flow for things like investing, retirement, renovations, and moreBuilds home equity more slowly

15-year mortgage pros and cons

Choosing a 15-year mortgage loan has its good and bad sides, too.

“You would pay off your debt more quickly given the faster amortization schedule, build equity more quickly, and likely get a lower interest rate. Going with a 15-year mortgage is one of the best ways to reduce mortgage debt and can save homebuyers thousands of dollars in interest paid,” Heck notes.

Trott explains that, over the life of a 15-year loan, “roughly 17% of your total payments go toward interest versus around 34% of your payment being applied to interest on a 30-year loan.”

But the biggest downside of a 15-year loan is that your minimum monthly mortgage payment will be substantially higher — likely by several hundred dollars.

Over the life of a 15-year loan, “roughly 17% of your total payments go toward interest versus around 34% of your payment being applied to interest on a 30-year loan.” —Tom Trott, Branch manager, Embrace Home Loans

“The higher monthly payments for a 15-year mortgage can mean qualifying for a less expensive loan and settling for a smaller home or missing out in a dream neighborhood,” adds Heck.

“It could also lead to borrowers stretching themselves too thin on their housing payments in the event of an unexpected expense or life event that changes their monthly income,” he continues.

What’s more, committing to a 15-year mortgage may leave you with less money to devote to other investments, such as a retirement plan or funding a child’s college fund.

“If your mortgage payments are so large as a percentage of your monthly income that you can’t adequately fund your retirement account or your child’s college education, then it may be wise to take out a 30-year mortgage instead,” suggests Johnson.

Consider that the extra money you pay each month with a 15-year loan could be used instead to invest in the stock market or retirement accounts that can yield a higher average rate of return over those 15 years.

15-Year Mortgage Pros15-Year Mortgage Cons
Lower interest rates than 30-year fixed-rate mortgagesHigher monthly payments
Lower total cost of interest over the life of the loanLess cash left over for investing, emergency funds, and other expenses
Builds home equity more quickly Potentially smaller home buying budget

Which loan term should you choose?

The right mortgage term for you depends on your monthly budget as well as your age, earnings, savings, and financial goals.

Jake Maier, a senior mortgage banker with American Bank of Missouri, says that good candidates for a 15-year mortgage are those who:

  • Can comfortably afford the higher monthly payments;
  • Want to pay off their home sooner;
  • Want to build equity more quickly;
  • And have the cash flow to support the debt load and the additional costs of homeownership

John Li, co-founder and CTO of Fig Loans, adds that “older adults closer to retirement may want to choose a 15-year mortgage and make aggressive payments so that their home is paid off or closer to paid off at retirement.”

That said, Johnson cautions against picking a 15-year mortgage “unless you are in a strong financial position to fund other life goals such as retirement accounts and children’s educational funds.

“If committing to a shorter mortgage would not allow you to fund these other life goals, then a 30-year mortgage is likely the better choice,” Johnson says.

Younger adults with plenty of working life ahead are also probably wise to select a 30-year mortgage, “especially if they’re just beginning their career and earning entry-level salaries,” adds Li.

One final thought to consider: You can always take out a 30-year mortgage loan and, at any time you choose, either refinance to a 15-year term or make extra payments toward principal balance (so long as your mortgage loan doesn’t have any prepayment penalties, which most don’t).

If you stuck to a disciplined and aggressive accelerated payment schedule, you could likely pay off your 30-year loan in 15 years or less if you so choose.

The bottom line

It’s worth exploring both 15- and 30-year mortgage loans. Whether you’re a first-time home buyer or a refinancing homeowner, there could be benefits and drawbacks to either type of loan.

Have your loan officer walk you through the monthly payments and overall cost for each loan type, as well as the short-term and long-term savings. Then choose the right loan term for your personal finances.

Erik J. Martin
Authored By: Erik J. Martin

The Mortgage Reports contributor

Erik J. Martin has written on real estate, business, tech and other topics for Reader's Digest, AARP The Magazine, and The Chicago Tribune.