15-Year Vs. 30-Year Mortgage Comparison
Author:
Hanna KielarJul 29, 2024
•6-minute read
If you’re new to the world of buying real estate, you’ll quickly discover that you have lots of choices when it comes to selecting the right lender and the right home loan. One particular loan option you’ll need to weigh before buying a home is a 15-year versus a 30-year mortgage to decide what makes the most sense for you.
There are several factors you'll need to consider to help decide how long you want to spend paying off your mortgage. You might think your decision should be based strictly on getting the best interest rate and lowest monthly payment, but other factors – like your lifestyle, income and budget – will affect your financial future.
15-Year Vs. 30-Year Mortgages: What’s The Difference?
America's most popular mortgage is the 30-year fixed-rate mortgage, but it’s not your only option.
A popular alternative to the 30-year fixed is the 15-year fixed-rate mortgage. Borrowers with a 15-year term make higher monthly mortgage payments than borrowers with a 30-year repayment term. In exchange for the shorter 15-year term, borrowers receive a lower interest rate. This means that borrowers with a 15-year term pay their debt in half the time and will likely save thousands of dollars over the life of their mortgage.
Mortgage Comparison: 15-Year Fixed Vs. 30-Year Fixed
Let’s assume you want to buy a $300,000 home. Because you’re prepared to make a 20% down payment of $60,000, you don’t have to factor in the cost of private mortgage insurance (PMI), and you get a mortgage for $240,000. For the sake of simplicity, we’ll assume a 6% interest rate for both the 30-year and 15-year mortgage, though you would likely get a lower rate for a 15-year loan.
Here’s the difference in mortgage payments and costs:
| Mortgage Term | Monthly Mortgage Payment | Total Cost Of Mortgage Interest | Total Cost Of Mortgage |
|---|---|---|---|
| 30-year fixed | $1,439 |
$278,012 |
$518,012 |
| 15-year fixed | $2,025 |
$124,546 |
$364,546 |
In this example, you would pay around $500 more a month with a 15-year mortgage. However, you’d save over $153,000 in total loan cost over the length of the loan.
Deciding Between A 15- And A 30-Year Mortgage
It may seem like the answer is right in front of you. A 15-year mortgage means you spend less time making payments. Better yet, you’ll devote less of your hard-earned money to mortgage interest over time.
While a 15-year mortgage might make the most sense on paper, deciding between the two term lengths will depend on your circumstances. You’ll need to evaluate your personal finances and understand the advantages and disadvantages of 15- and 30-year mortgage terms.