Is a 15 Year Mortgage Better than a 30 Year?

by

When considering a home mortgage, one of the key decisions is whether to opt for a 15-year or a 30-year mortgage. While a 30-year mortgage is more common, a 15-year mortgage offers some advantages that may make it a better choice for some borrowers. In this article, we’ll explore the differences between these two types of mortgages and help you decide which one is right for you.

Is a 15 Year Mortgage or 30 Year Mortgage Better for You?

  1. Monthly payments: Since a 15-year mortgage has a shorter term, the monthly payments will be higher than a 30-year mortgage. For example, if you borrow $300,000 at a 3% interest rate, your monthly payment for a 15-year mortgage would be around $2,072, while the monthly payment for a 30-year mortgage would be around $1,264.
  2. Total interest paid: A 15-year mortgage typically has a lower interest rate than a 30-year mortgage, which means you’ll pay less interest over the life of the loan. For example, if you borrow $300,000 at a 3% interest rate, you’ll pay about $54,400 in total interest over the life of a 15-year mortgage, while you’ll pay about $154,000 in total interest over the life of a 30-year mortgage.
  3. Equity: Because a 15-year mortgage has a shorter term, you’ll build equity in your home more quickly than with a 30-year mortgage. This can be beneficial if you plan to sell your home or take out a home equity loan or line of credit in the future.
  4. Affordability: While a 15-year mortgage may save you money in the long run, the higher monthly payments can make it harder to afford your mortgage and other expenses. A 30-year mortgage may be more manageable for some borrowers, particularly those who are just starting out in their careers or have other financial obligations.
  5. Rates: Interest rates tend to be lower on on a 15 year loan than on a 30 year loan which means you will pay less interest over the life of the loan.

Ultimately, the choice between a 15-year mortgage and a 30-year mortgage will depend on your financial situation, goals, and priorities. If you can afford the higher monthly payments and want to save money on interest, a 15-year mortgage may be a good choice. If you prefer a lower monthly payment and want more flexibility in your budget, a 30-year mortgage may be a better fit.

Another Mortgage Option to Consider

Another option would be to opt for the longer term of 30 years but make payments as you can based on the 15 year. This would keep your payment amount lower and pay down extra toward your principal. Making extra payments will shorten the life of your loan and result in paying less interest.

A mortgage professional can help you weigh the pros and cons and choose the best option for your needs.

Read this post to learn about other methods of financing a house with a mortgage.