Mortgage loan terms: Pick the right one for your financial goals

Your mortgage loan term is one of the most important decisions you’ll make on your path to homeownership. The jargon can be confusing, but a simple loan term definition is that it’s the length of time you have to pay back your mortgage. It’ll shape both your monthly payment and the total amount of interest you'll pay over the life of your loan.

Most borrowers choose between 15-year and 30-year terms, though 10-year, 20-year, and adjustable-rate options are also available. There's no universal "best" mortgage term because different terms help you prioritize different goals. For example, you may want to focus on lower monthly payments, paying less interest overall, or building equity faster.

Let's break down everything you need to know about mortgage loan terms so you can choose the one that aligns with your financial goals the most.

What are mortgage loan terms?

So, what is a loan term?

When you take out a mortgage, your loan term is the length of time you have to repay the entire loan amount. It creates a trade-off between your monthly payment and the total amount you'll pay over time.

With a shorter term, you'll have higher monthly payments but pay less interest overall. With a longer term, you'll have lower monthly payments but pay more interest in the long run.

For example, if you borrow $350,000 at 5.75% (6.193% APR) interest, a 15-year mortgage would cost you about $2906.44 per month.¹ In turn, a 30-year mortgage would cost about $2,212.24 per month at 6.5% interest (6.791% APR)². That’s almost a $700 monthly difference. However, over the life of the loan, you'd pay about $248,000 more in interest with the 30-year option.

This payment structure works through amortization, where each monthly payment includes both principal and interest. Early in your loan, most of your payment goes toward interest. As time goes on, more goes toward principal, helping you build equity. Shorter terms mean you'll start paying down principal more quickly.

If you want to minimize monthly expenses, a longer term might make sense. But if you want to minimize interest costs and build wealth faster, a shorter term could be better. However, ultimately, there’s no right or wrong strategy.

Common mortgage term options

Most lenders offer several loan term lengths, each with its advantages and trade-offs. We'll walk you through the most popular options – 30-year, 20-year, and 15-year mortgages – plus cover 10-year loans and adjustable-rate mortgages (ARMs).

30-year mortgage

The 30-year fixed-rate mortgage is by far the most popular choice in the U.S. because it offers the lowest monthly payments of any fixed-rate option, making homeownership accessible to more people.

The pros of a 30-year mortgage include:

• Lower monthly payments: This means there’s more room in your budget for other expenses.
• Easier to qualify: These mortgages have lower debt-to-income ratio (DTI) requirements since the payments are smaller.
• Financial flexibility: You could free up cash for investing, emergency savings, or other priorities.

Overall, a 30-year mortgage is a solid option for many Americans. However, there are also cons to consider:

• Higher total interest: You'll pay much more in interest over the life of your loan, which can be frustrating.
• Slower equity building: It takes longer to build substantial ownership in your home.

This loan term is typically best for home buyers who want maximum budget flexibility and people planning to stay in their home long-term. Also, it can work well for you if you prefer to invest extra money elsewhere rather than pay down your mortgage faster.

20-year mortgage

The 20-year mortgage is a long-term mortgage that strikes a balance between the higher payments of a 15-year mortgage and the higher interest of a 30-year mortgage. For many home buyers, it’s the sweet spot.

The pros include:

• Lower total interest: You'll pay less interest than with a 30-year loan.
• Faster equity building: You’ll build ownership in your home more quickly and could reduce your debt.
• More manageable payments: Monthly payments are still more affordable than a 15-year mortgage or another short-term mortgage.

At the same time, there are important drawbacks to consider:

• Higher monthly payments: You'll pay more each month than with a 30-year loan.
• Limited availability: Fewer lenders offer 20-year terms compared to 15- and 30-year options.

If you want to pay off your home faster without the financial pressure of steep monthly payments of a short-term loan and can comfortably afford the higher payments than what a 30-year loan requires, a 20-year mortgage can be a good choice for you.

15-year mortgage

If you can handle higher monthly payments and want to pay off your loan faster, a 15-year mortgage can be a great option for you. It maximizes your long-term savings and builds wealth through homeownership at a faster pace.

The benefits of choosing a 15-year mortgage include:

• Lower total interest:You could save tens of thousands in interest compared to longer terms.
• Better interest rates: Lenders typically offer lower rates on 15-year loans (though not always).
• Fast equity building: You'll own more of your home much faster than with a 20- or 30-year mortgage.

At the same time, the cons are:

• Significantly higher payments: Monthly payments can be hard to keep up with, especially if your income is unstable.
• Limited cash flow: Higher payments may limit cash available for other goals like investing or emergencies.

Buyers with steady, high incomes who can comfortably afford higher payments will benefit from a 15-year mortgage the most. Those approaching retirement who want to own their home outright sooner are another group that often considers this option.

10-year mortgage

The 10-year mortgage is less common but available for borrowers who want to aggressively pay down their loan and save the most on interest. You need to be able to handle very high monthly payments, but you’ll get better long-term savings.

Consider these advantages:

• Less interest paid: You'll pay significantly lower interest costs given the shorter-term
• Fastest homeownership: You’ll own your home outright in just 10 years.
• Low rates: This loan term often comes with some of the best available interest rates.

Naturally, there are drawbacks to choosing such a short mortgage loan term:

• Very high monthly payments: Payments can be double or more compared to a 30-year loan.
• Strict financial requirements: Lenders typically require strong, stable income and very low existing debt.

Borrowers with exceptionally strong financial footing who prioritize long-term savings over monthly cash flow and high earners with minimal debt can benefit from a 10-year mortgage, but it’s not the most conventional option.

Adjustable-rate mortgage

An adjustable-rate mortgage starts with a fixed interest rate for a set number of years (typically 5, 7, or 10 years), and then adjusts every year based on current market rates. ARMs are good for initial savings, but they also come with uncertainty about future payments.

The pros include:

• Lower initial rates: ARMs start with interest rates that are typically lower than fixed-rate loans.
• Potential savings: You can sometimes save money if you sell or refinance before the rate adjusts.

But there’s a lot of payment uncertainty with ARMs. Your monthly payments may increase significantly after the fixed period ends, which can put a strain on your budget and make long-term financial planning more difficult.

It’s usually best for buyers who plan to sell or refinance within a few years and those who expect their income to grow a lot in the future.

Term length comparison example

Let's put these options in perspective with real numbers. The loan term comparison table below shows what your monthly payment and total interest costs would look like for a $350,000 home loan at typical market rates.

In this example, the 30-year loan offers the most affordable monthly payment at $2,212.24, which is $1,629.69 less per month than the 10-year option. But over the life of the loan, you'd pay $335,375 more in interest by choosing the 30-year mortgage over the 10-year option.

The 15-year mortgage sits in a popular middle ground. Your monthly payment would be $694.20 more than the 30-year loan, but you'd save $273,248 in total interest costs. That's a trade-off that many borrowers find worthwhile when they can afford the higher payment.

Factors to consider when choosing a loan term

Your mortgage term should fit your life and goals. Here are the key factors to think through:

• Financial goals: Are you focused on building wealth as quickly as possible, or do you prefer having extra cash each month for other investments? If you want to maximize long-term savings, shorter terms make sense. But if you want flexibility for other financial priorities, longer terms might be better.
• Monthly budget: Figure out how much of your income should go to your mortgage. A good rule of thumb is that your total housing costs shouldn't exceed 28% of your gross monthly income.
• Interest rates: Shorter loan terms typically come with lower interest rates, which can save you money beyond just the shorter timeframe. The difference might be small, but it adds up over time.
• Loan purpose: If you're buying a primary residence that you plan to stay in long-term, a long-term loan can work. But if you're buying an investment property or think you might move in a few years, factor that timeline into your decision.
• Age and retirement plans: If you're in your 40s or 50s, you might want to align your mortgage payoff with your retirement date.

Take the time to run the numbers with a mortgage amortization calculator and see how different terms affect your specific situation. It’s also often helpful to talk with a financial advisor.

FAQ about mortgage loan terms

Can I change my mortgage term after closing?

Yes, you can change your mortgage term through refinancing, which means taking out a new loan to replace your current one. This lets you switch from a 30-year to a 15-year term (or vice versa) and potentially get a better interest rate. Keep in mind that refinancing comes with closing costs, so you'll want to make sure the benefits outweigh the expenses.

Is it better to choose a shorter mortgage term?

It depends. Shorter terms save you money on interest and build equity faster, but they require higher monthly payments. If you can comfortably afford the higher payments and want to minimize total costs, shorter terms are great. If you need lower monthly payments or want to free up cash for other investments, longer terms might be better for you.

How does the mortgage term affect my interest rate?

Shorter mortgage terms typically come with lower interest rates. Lenders offer better rates on shorter loans because they're taking on less risk over a shorter period.

Are there penalties for paying off my mortgage early?

Many conventional mortgages today don't have prepayment penalties, but some loans do. It's important to review your loan agreement before signing to understand any restrictions on early payoff. Rocket Mortgage^® doesn’t charge prepayment penalties.

The bottom line: Loan terms can make a big difference over time

The difference between a 15-year and 30-year mortgage isn't just 15 years. Choose a 15-year mortgage over a 30-year loan, and you could save hundreds of thousands of dollars on interest, but you’ll have to budget much more for monthly payments.

While there’s no right or wrong answer, understanding how different term lengths affect your monthly payments, total interest costs, and long-term financial picture puts you in control of your homebuyer journey.

Ready to explore your options? Rocket Mortgage Home Loan Experts can help you understand what each loan term would mean for your specific situation and find the mortgage that aligns best with your goals. Start your mortgage application today.

¹ An interest rate of 5.75% (6.193% APR) is for the cost of 1.875 point(s) ($6,562.50) paid at closing. On a $350,000 mortgage, you would make monthly payments of $2,906.44. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater. Payment assumes a loan-to-value (LTV) of 80.00%. Rate valid as of December 12, 2025.

² An interest rate of 6.5% (6.791% APR) is for the cost of 2.00 point(s) ($7,000.00) paid at closing. On a $350,000 mortgage, you would make monthly payments of $2,212.24. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater. Payment assumes a loan-to-value (LTV) of 80.00%. Rate valid as of December 12, 2025.

³ An interest rate of 5.75% (6.378% APR) is for the cost of 1.875 point(s) ($6,562.50) paid at closing. On a $350,000 mortgage, you would make monthly payments of $3,841.93. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater. Payment assumes a loan-to-value (LTV) of 80.00%. Rate valid as of December 12, 2025.

⁴ An interest rate of 6.5% (6.85% APR) is for the cost of 1.75 point(s) ($6,125.00) paid at closing. On a $350,000 mortgage, you would make monthly payments of $2,609.51. Monthly payment does not include taxes and insurance premiums. The actual payment amount will be greater. Payment assumes a loan-to-value (LTV) of 80.00%. Rate valid as of December 12, 2025.