15-year vs. 30-year mortgages

A 30-year mortgage offers high stability with low monthly payments, while a 15-year mortgage costs more in the short term but saves you money over the long haul. Considering the benefits and drawbacks of both can help you decide which way to go.

How do 15-year and 30-year mortgages compare?

The cost of your mortgage varies based on your choice of a 15- or 30-year term. Your term affects your monthly payment, interest rate and qualifications, among other features.

Monthly payments

A 30-year mortgage comes with lower monthly payments. You’re spreading the cost of the loan out over twice the time, which can give you more flexibility in your monthly budget.

Interest rates

While it may not seem intuitive, interest rates for loans of the same amount can vary based on the term. Because the loan is shorter and costs less for the lender, a 15-year mortgage is seen as less risky, and can carry a lower interest rate than a 30-year mortgage.

Cost over time

Higher interest rates and a longer term means that a 30-year mortgage costs more than a 15-year option. A 30-year mortgage can also attract additional fees, especially government-backed loans like FHA, VA and USDA loans.

Application standards

Because the amount you’re paying each month is higher with a 15-year mortgage, the application standards are generally higher. Your income needs to support your monthly payments, so you’ll need a larger income or lower debt-to-income ratio for a 15-year mortgage than a 30-year mortgage.

Home equity

The quicker you pay off your interest, the faster you build equity. A 15-year mortgage allows you to bank equity that you can tap into much faster than a 30-year mortgage.

15-year vs. 30-year mortgage payment comparison

Monthly, a 30-year mortgages can seem less painful, but over time, you’ll pay thousands more in interest than with a 15-year mortgage. Not only is the interest rate usually higher on a 30-year mortgage, but it’ll accumulate for twice the amount of time.

Compare the total cost of your $300,000 mortgage with a 4.25% fixed interest rate.

This means that even though you’d save $781.02 each month with a 30-year mortgage, you’ll end up paying an extra $125,065 in the long run.

These estimates don’t take a down payment into account, which affects your overall monthly payment and total interest over the life of the loan. The more you pay up front, the less interest accumulates over time.

Choose a 15-year mortgage if:

You can qualify for the shorter term, you can comfortably afford the additional cost every month and you already have savings built up for emergencies.

A 15-year mortgage allows you to pay off your home faster and for less money. If you’re not financially prepared with savings or money for emergencies, the higher monthly payment can quickly become a burden.

Choose a 30-year mortgage if:

You want more flexibility to save, or want to buy more property than you can afford with a 15-year mortgage. Saving for retirement or a rainy day is important, and a lower monthly mortgage payment could support that. But you’ll pay more to spend more with a 30-year mortgage.

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Bottom line

A 30-year mortgage allow you to keep more money in your pocket from month-to-month, but you’ll save more in the long run with a 15-year mortgage. If you’re still unsure of which to choose, learn more about mortgages and how they work.

Frequently asked questions

• Can I refinance a 30-year mortgage to a 15-year?

  Yes, you typically can. As long as your 30-year mortgage doesn’t have prepayment penalties and your income supports it, you can apply for refinancing after you’ve paid down some of your principal.

  However, make sure you can afford the adjustment. You can pay less overall, but you need to consistently make the higher monthly mortgage payments until it’s paid off.

• What happens if I can’t make a monthly payment?

  Call your mortgage lender immediately to explain the situation and work out a plan for getting back on track. You may be able to rework payment terms or be connected with a financial advisor, depending on the lender.

• Are there any tax deductions I can take, if I take out a home loan?

  Yes. Under the tax code, if your home loan is under $750,000, you can deduct the interest you pay on the mortgage.

  If you’re unsure how this may affect you based on your mortgage’s term length, you may want to discuss it with a tax professional.