The Average Mortgage Length In The US
Lauren Nowacki8-minute read
June 04, 2021
When deciding between certain products, it can be easy to just go with the most popular. But when it comes to choosing the right mortgage product to fit your goals, going with the most popular option may not be the best decision. Sure, learning the average mortgage length in the U.S. is a good place to start, but learning more about other term length options and the benefits and drawbacks of each one will help you find the right mortgage for you.
What Is The Average Home Loan Length?
Mortgages typically come with a certain amount of time to pay the loan off. This is known as a mortgage term. The most common mortgage term in the U.S. is 30 years. A 30-year mortgage gives the borrower 30 years to pay back their loan.
Most people with this type of mortgage won’t actually keep the original loan for 30 years. In fact, the typical mortgage length, or average lifespan of a mortgage, is under 10 years. That’s not because all of these borrowers pay the loan off in record time. It’s more likely that homeowners refinance into a new mortgage or purchase a new home before the term is up. According to the National Association of REALTORS® (NAR), buyers only expect to stay in the home they purchase for a total of 10 – 15 years.
So why, then, is the 30-year option the average mortgage term in America? Its popularity has to do with several different factors, including current mortgage rates, the monthly payment, the type of home being purchased or the borrower’s financial goals.
What Are My Mortgage Term Length Options?
There are two types of mortgages: a fixed-rate mortgage or an adjustable-rate mortgage (ARM). When it comes to fixed-rate vs. ARM, the major difference is that a fixed-rate loan has an interest rate that stays the same throughout the life of the loan. With an ARM, the interest rate adjusts throughout the loan term. ARMs are also 30-year loans only, while fixed-rate loans have various term options for borrowers.
Most fixed-rate mortgages will have a 30-year or 15-year term, though some lenders offer 20-year terms and some even allow borrowers to choose their own term.
Home buyers should consider all possible home loan options before committing to a mortgage. Let’s dive deeper into these products to get a better understanding of each.
Some home buyers may opt for a 15-year mortgage because of one major factor – total interest paid. With a shorter mortgage term, borrowers pay off the loan quicker. That means they’ll pay less total interest because they’re paying interest for half the amount of time as a 30-year. An additional benefit to paying the loan off faster is that homeowners will build equity faster and own their home free and clear much sooner.
While a 15-year mortgage has its advantages, many homeowners shy away from this type of loan. While it can save borrowers a lot of money in the long run, it comes with higher monthly payments.
As we mentioned before, the 30-year mortgage is the most common home loan term in the U.S. With this mortgage, borrowers have 30 years to pay the loan off and have a fixed or adjustable interest rate throughout the life of the loan.
Because the payment is spread out over the most amount of time, the 30-year mortgage has the lowest monthly payment of these term length options. However, since you’ll be paying the longest amount of time, you’ll likely pay the most total interest.
For borrowers who don’t want a 30-year mortgage, but think the monthly payment on a 15-year mortgage is a little tight, a 20-year mortgage could be a good compromise. While the standard option for a 20-year mortgage is a conventional loan, they’re also available as FHA and VA loans.
With a term length between the 15-year and 30-year mortgages, you can find some middle ground. For example, 20-year mortgages do have a lower interest rate than a 30-year mortgage and will help you save on overall interest paid throughout the life of the loan. However, you won’t save as much total interest as you would with a 15-year loan. And, while 20-year mortgages have a lower monthly payment than a 15-year and, thus, offer more financial flexibility, they still have a higher monthly payment than a 30-year mortgage.
Rocket Mortgage® has a loan option called YOURgage, which allows you to choose a fixed-rate term of anywhere from 8 – 29 years. This fixed-rate loan is more customized to a homeowner’s financial goals and can give them some control over their monthly payment amount.
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Digging Deeper: Shorter Vs. Longer Mortgage Terms
Mortgage term length is one factor that helps determine the monthly payment amount and amount of interest paid over time. When deciding on a mortgage term length, consider the following.
Longer Mortgage Terms
Lending any amount of money – especially a large sum – can be risky. Because the lender is holding on to that risk for a longer period of time, longer terms can seem riskier than shorter ones. To help with this, lenders will charge a higher interest rate on a 30-year mortgage than a 15-year. At the time of this writing, current interest rates are 2.99% for a 30-year mortgage and 2.25% for a 15-year.
It’s important to remember that several factors determine the interest rate a borrower will pay and there are ways to lower the interest rate, including buying down a mortgage.
While longer mortgage terms come with higher interest, the advantage borrowers have with these loans are the lower monthly payments. Since the payment is spread over more years, borrowers will pay less each month. This aspect is what makes 30-year loans popular among homeowners, especially first-time home buyers.
Shorter Mortgage Terms
Homeowners with 15- and 20-year mortgages can expect to pay higher monthly payments than longer-term loans because they have less time to pay back the loan. The flip side is that they’ll likely have a lower interest rate. Because the years of risk are cut by 10 or 15 years, lenders charge a lower interest rate on a 15-year or 20-year mortgage.
Because lenders are holding on to the risk for a shorter time, they charge a lower interest rate on a 15-year or 20-year mortgage. And, of course, the biggest advantage is that the amount of time you pay interest on the loan will be cut by 10 – 15 years, meaning you’ll pay way less total interest, providing tens of thousands of dollars in savings.
15- And 30-Year Term Length Options Compared
We’ve talked a lot about saving money on your monthly payments vs. saving money on your total interest. To get a better understanding of just how much of a difference mortgage terms can make, it may be helpful to see it in a real-life example.* For the sake of simplicity, we’ll use the same interest rate for both loans.
15-Year Fixed for $200,000 Mortgage
- Loan term: 15 years
- Interest rate: 2.5%
- Monthly payment: $1,334
- Total interest paid: $40,044
30-Year Fixed for $200,000 Mortgage
- Loan term: 30 years
- Interest rate: 2.5%
- Monthly payment: $790
- Total interest paid: $84,487
In the example above, you’d save $544 on your monthly payment each month with a 30-year mortgage. However, with a 15-year mortgage, you would save $44,443 on total interest.
Wondering what your situation might look like? Plug your own numbers into our mortgage rate calculator to compare your payment across the various mortgage terms.
* Please note, the monthly payments in these examples do not include escrow payments. Total interest paid is based on the borrower keeping the mortgage for its full term and not making extra payments on the loan. Keep in mind that interest rates will vary depending on several factors, including a borrower’s credit score, down payment, loan amount, loan type and home location.
Is The Average Mortgage Term Right For Me?
When deciding the right mortgage term for you, it’s important to consider your budget and the long-term financial goals you have. To help with your decision, consider the following questions.
Are You Planning To Buy A Large Home?
Because monthly payments are lower with a 30-year mortgage, you’ll likely be able to afford more house with the long-term loan. If you’re planning on purchasing a large or luxury home, a 30-year mortgage may be a better option.
What Are Your Other Financial Goals?
If you have other financial goals, such as saving for a child’s education or paying off student loans, you may benefit from the low monthly payments offered by 30-year mortgages. The money you’ll save from having a lower monthly payment can go toward saving money or paying off debts. Using the comparison example above, if you opted for a 30-year loan instead of 15-year, you could use the $544 you’d save on your monthly payment to pay off other debts or put into your savings account.
Are You Prepared To Carry The Long-Term Debt?
You’ll need to ask yourself if you’re comfortable with the long-term commitment that comes with a 30-year mortgage. Keep in mind there are ways to pay down the mortgage early, but some lenders charge an early prepayment fee. Before you commit to this long-term debt, ask your lender about prepayment penalties and create a plan for paying the loan off early if you can.
The Bottom Line: Consider All Mortgage Term Options
The average mortgage term is 30 years, but that doesn’t mean you have to get a 30-year loan – or take 30 years to pay it off. While it offers one of the lowest monthly payments among the various term options, you’ll likely pay the most in total interest if you keep it for 30 years. When choosing your mortgage term, consider your financial goals and monthly budget, talk to a mortgage expert and learn how to get the best mortgage rate possible – whatever term you choose.
If you’re ready to start the mortgage process by apply for preapproval with Rocket Mortgage.
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