The term you choose for your mortgage is one of the biggest decisions you’ll make as a homeowner, especially if you’re choosing between a 15-year vs a 30-year mortgage. The term you choose affects your monthly payments, total interest paid, the rate at which you build equity, and how much flexibility you have in your budget. The best choice for you depends on your income, long-term plans, and how much value you place on being debt-free versus keeping cash on hand.
15 Year Mortgage vs 30 Year Mortgage: Basic Differences
Here’s how these mortgage products differ:
- Term length: Repayment in 180 months vs 360 months
- Interest rate: Lenders typically offer a 15-year mortgage at 0.25% to 0.75% lower than 30-year products.
- Monthly payments: Payments on 15-year mortgages are higher, but the lower interest rate partially offsets this.
- Equity building: You build equity much faster with a 15-year mortgage vs a 30-year mortgage.
- Flexibility: Homeowners have more financial and lifestyle options with a 30-year vs 15 15-year mortgage because they have more room in their monthly budget.
These essential differences are often enough for homeowners to make a confident choice, but looking at hard numbers and alternatives to a 30-year vs 15-year mortgage can be helpful.
Mortgage Term Differences by the Numbers
Hard numbers can help compare 15 vs 30-year mortgage products.
| $300,000 Loan @7% | ||||
| Term | Monthly Payment (P+I) | Total Payments Over Term | Total Interest Paid Over Term | Equity After 10 Years |
| 15 years | $2,613 | $470,340 | $170,340 | $207,000 |
| 30 years | $1,996 | $718,560 | $418,560 | $61,000 |
| Difference | $617 | $248,220 | $248,220 | $146,000 |
As you can see, the savings over the term of the loan are considerable for a 15-year mortgage vs a 30-year mortgage, and you build equity much faster with the shorter-term loan. To look at other scenarios, try using a 30 vs 15-year mortgage calculator. Having the actual numbers can help you weigh your choices.
When a 30 Year Mortgage Makes More Sense
Even though the long-term savings with a 15-year mortgage are substantial, there are still situations where a 30-year product is the right choice.
You’re Stretched Financially
If paying your mortgage means you’ll have nothing left over, a 15-year term might be better for you, especially if you’re averse to being house poor. In fact, if finances are tight, you might not qualify for a 15-year mortgage based on your debt-to-income ratio (DTI). Consult with your lender or financial planner for a thorough analysis of your DTI and what it means for your borrowing capacity.
You Have Other High-Interest Debt
If you’re carrying credit card balances, personal loans, or other debts at a higher rate of interest than your mortgage, it makes sense to pay those off first before focusing on paying down your mortgage. Once that debt is taken care of, either by paying it off or by consolidating it into a low-interest loan, you can switch to a shorter-term mortgage.
You’re Prioritizing Retirement Savings
Younger buyers with decades until retirement can maximize retirement contributions for better long-term results if they go with a longer mortgage amortization. If you’re having trouble weighing a 15-year vs 30 30-year mortgage because you’re concerned about retirement savings, consult with an investment counselor or financial planner. They can help you project potential returns from retirement savings, including the tax implications, and they can game out various scenarios for you.
You Value Financial Flexibility
If it’s important to you to have extra money in your monthly budget for medical expenses, family emergencies, or investment opportunities, a 30-year mortgage might be better. You can always make extra principal-only payments when you do have cash on hand that you don’t need.
Your Income Varies and Could Decrease
If your income is steadily increasing, you won’t have to worry about not being able to afford your mortgage payments. But if you have a variable income, are self-employed, or your income might go down, a 30 year vs 15 year mortgage might be better for you.
You’re Interested in a More Expensive Home
With the lower payments of a 30-year mortgage, you could qualify for a larger loan.
When a 15 Year Mortgage Makes More Sense
When evaluating a 15 year vs 30 year mortgage, there are plenty of situations where the shorter term is the better choice.
You Can Comfortably Afford the Higher Payments
If a 15-year term doesn’t strain your budget, and you can keep up with your other debt payments and housing costs, a 15-year term can be advantageous.
You’re Approaching Retirement
In retirement, your income will likely decrease. Eliminating mortgage debt before retirement is a good idea, and if you can do this while your income is higher, you’ll be more comfortable in retirement.
You Have a High, Stable Income with Good Job Security
High-income earners who don’t need to worry about sudden decreases in their income can afford to go with a 15-year mortgage, but may still want to use the extra money for investing or retirement savings.
You’re Averse to Debt
Some people feel uncomfortable having debt hanging over their heads. If it causes you anxiety, try a 15-year mortgage so you can be debt-free faster. This works particularly well for people who are very disciplined and can keep their other spending low.
Other Approaches to a 15 Year Vs. 30 Year Mortgage
If you’re on the fence between these mortgage terms, there are a few ways you can walk the middle path:
- Get a 30-year mortgage and make extra principal-only payments. Check to make sure your lender allows these and how often they’ll allow you to make these payments.
- Opt for a 20 or 25-year mortgage if your lender offers them.
- Start with a 30-year mortgage and refinance with a shorter term when your income increases.
- Make bi-weekly payments to pay your loan down faster.
Choosing between a 15-year vs 30 30-year mortgage is not binary; there are plenty of ways to get the advantages of a shorter term while keeping your payments reasonable.
Making a Decision About Your Mortgage Term
The choice between a 15 year vs 30 year mortgage is straightforward for many borrowers, but others fall in the zone of indecision. If in doubt, a financial advisor is your best resource. They can work out various scenarios for you, incorporating your income, other investments, financial goals, and tax situation to help you arrive at the best decision for you.
