15-Year vs. 30-Year Mortgage: The Better Choice?

Owning a home or property is one of the biggest dreams of most people. To make this dream come true, most people need to take a mortgage. Many types of mortgages are available, and the repayment tenure is also different, depending on your preferences and goals. A 15 vs. 30-year mortgage is a decision that confuses many of us, and the decision is based on a lot of factors. The longer the term of a mortgage, the lesser the monthly installments will be, but you will end up paying more interest. With a shorter mortgage period, the monthly installments are higher, but since you repay the loan quickly, the interest payable is less.

Choosing the right type and tenure of mortgage is important, between a 15-year and 30-year mortgage, as that will decide where a significant part of your monthly income goes. It can affect your budget and many other financial decisions. This article will help you decide which is the best mortgage for you, between a 15-year vs. 30-year mortgage.

What Is a 30-Year Mortgage?

A 30-year mortgage has monthly payments spread over 360 months. Most 30-year mortgages have a fixed rate, i.e., the interest rate and payments remain constant for the entire period. As the repayment period is longer, the monthly installments will be lower than those of a 15-year mortgage, but the total interest paid will be much higher.

Pros and Cons of a 30-year Mortgage

There are many pros and cons of a 30-year Mortgage.

Pros of a 30-year Mortgage

• Lower and affordable monthly payments as the repayment tenure is more extended.
• Paying off the mortgage faster is possible by paying more than the minimum monthly payments.
• Since a 30-year Mortgage has a fixed interest rate, you can easily predict and budget for your expenses.
• With lower monthly payments, you can even afford a more expensive house.
• Mortgage interest payments are tax-deductible.
• It is easier to qualify for a 30-year Mortgage, so more people can take advantage of it.

Cons of a 30-year Mortgage

• As the repayment tenure is longer, you will end up paying more interest.
• The rate of interest is also higher.
• It will take longer to build equity in your home due to the longer repayment period.
• Since monthly payments are affordable, many people are tempted to buy an expensive house that is out of their budget.

What is a 15-year Mortgage?

A 15-year mortgage is a home loan that you repay over 15 years or 180 monthly installments. Since you pay off the loan faster, the monthly payments are higher than a 30-year Mortgage. However, the interest paid will be lesser as the repayment tenure is less, so the overall cost of the mortgage is substantially lower in a 15-year Mortgage. These mortgages also have a fixed rate, where the interest and monthly payments remain unchanged for the entire period.

Pros and Cons of a 15-year Mortgage

Consider these points before taking a 15-year Mortgage.

Pros of a 15-year Mortgage

• The interest costs are much less than a 30-year Mortgage.
• The interest rates are also lower.
• You can become a homeowner more quickly.
• You build your home equity faster.

Cons of a 15-year Mortgage

• The monthly installments are higher as the term is shorter.
• After such heavy monthly payments, you might have very little funds for other necessities or to save.
• You might not be able to buy your dream house you wanted due to the higher monthly payments.

15- vs. 30-year Mortgage: What’s the Difference?

The difference between a 15-year Mortgage vs. a 30-year Mortgage is the mortgage term. It is the period within which you have to repay the loan. Most lenders offer 15-, 20-, or 30-year mortgages, but other tenures are also available.

A 15-year Mortgage requires 180 months to repay, so the monthly payments are higher, but the interest costs are lower compared to a 30-year Mortgage.

In a 30-year Mortgage, you repay the loan in 360 months, meaning the monthly payments are lower, but the interest rates and costs increase.

15 vs. 30-year mortgage comparison

Let us understand the difference between a 15-year and 30-year Mortgage with an example.

	15-Year Mortgage	30-Year Mortgage
Loan Amount	$400,000	$400,000
Interest Rate	5.9%	6.6%
Monthly Payment (Principal + Interest)	$3,353	$2,554
Total Amount Paid Over The Loan Tenure	$603,540	$919,440

How to Pay Off a 30-year Mortgage in 15 Years

Paying off a 30-year Mortgage sooner is possible if you:

• Make Extra Payments Each Month: By doing so, you will pay off your loan earlier and save on the interest costs.
• Make Bi-Weekly Payments: If you decide to pay 26 half-payments instead of 12 monthly payments (it does add one extra monthly payment per year).
• Make an Additional Monthly Payment Each Year: The main chunk of the interest payable is accumulated in the first ten years of the loan tenure, so by paying just one extra payment in a year, you will be able to move ahead.
• Refinance Into a Shorter-Term: If you feel capable of paying higher monthly payments, you can refinance your home loan into a 15-year shorter loan.
• Recast Your Mortgage: You can reduce your monthly payments if you pay a lump sum amount towards the loan’s principal.
• Sell Your House and Move: You have the option of selling the home to repay the mortgage and move into a more affordable house.

Alternatives to 15-year and 30-year Mortgages

If neither 15-year nor 30-year mortgages suit your needs, you can consider a few alternatives, such as:

1. 10-Year: By paying higher monthly payments, you can pay off the loan faster and save a lot on the interest amount payable.
2. 20-Year: Even with a 20-year Mortgage, you will save quite a bit of the payable interest, and the monthly payments will become more affordable than those of a 10-year tenure.
3. 40-Year: This is not a common choice, but it offers the lowest monthly payments. However, it is advisable to refinance once you can afford higher monthly payments.
4. Interest-Only Mortgage: In this type of mortgage, you pay only the interest amount for the initial years. Then, you pay a much higher monthly interest payment plus principal for the remaining period.
5. Adjustable-Rate Mortgage (ARM): These are generally 30-year Mortgages with a fixed low interest rate for the initial years of the mortgage. Then, the interest rate changes periodically. This mortgage is for someone who plans to refinance the loan before the introductory low-interest period ends.

15-year vs. 30-year Mortgage: How to Decide

Deciding between a 15-year Mortgage vs. a 30-year Mortgage will depend on your financial situation and goals, credit scores and history, and how much balance money you require after the monthly mortgage payments for your other monthly expenses and savings. Both 15-year and 30-year mortgages have pros and cons and it boils down to your choice and preferences. With a 15-year mortgage, you will become a homeowner faster and save on interest payments but will have to pay higher monthly installments. With a 30-year Mortgage, the monthly payments will be affordable, but interest costs will be much higher, and owning the house will take longer. Contact us to get more insights into owning your dream house and to make your financial planning more goal-oriented.

FAQs

Can You Refinance a 30-Year Mortgage into a 15-Year Mortgage?

Yes, you can refinance a 30-year Mortgage into a 15-year loan whenever you can afford higher monthly payments.

Can You Make Extra Payments on a 30-Year Mortgage?

Yes, extra payments are possible if you have excess cash available.

How do 15-year and 30-year mortgages impact tax deductions?

You can deduct interest paid from payable tax, no matter the tenure of the mortgage. The higher the interest paid, the more tax deduction is possible, up to $750,000, depending on when you took the loan.