If you’re shopping for a home, it’s important to consider the pros and cons of a 15-year versus a 30-year mortgage. A 30-year home loan offers more affordable monthly payments, but a 15-year loan could substantially reduce the interest you pay overall.
There are other important considerations. With spread-out payments, a 30-year term could help you afford a costlier property, whereas a 15-year term can help you build equity on a faster timetable.
15-year and 30-year mortgage differences
When you apply for a mortgage, you select the payback period, or the loan repayment term. Commonly, homebuyers decide on a 15-year or 30-year term and repay the debt in equal monthly installments. (Though the choice is far from an even split: Freddie Mac has reported that 90% of home-purchase loans have 30-year terms.)
What is a 15-year mortgage?
A 15-year mortgage is a home loan you repay over 15 years, or 180 monthly installments.
Because you’re paying the loan off over a shorter period, your monthly payments are higher than with a 30-year loan. However, because you pay for less time, the total cost of the loan is significantly lower than if you spread repayment over 30 years.
Related >> 15-year fixed mortgage rates
What is a 30-year mortgage?
With a 30-year mortgage, you make 360 monthly payments.
Because you’re paying a smaller portion of the amount you borrowed (or principal) each month, your monthly payments are lower than with a 15-year loan. However, since you pay interest for twice as long, the total paid will be much higher than with a 15-year loan.
Related >> 30-year mortgage rates
15-year vs. 30-year cost: What’s the difference?
The cost difference between a 15-year and 30-year mortgage varies depending on the size of the loan and the interest rate. Mortgage rates — or APRs, which account for simple interest and lender fees — are typically (and historically) lower for 15-year terms (given the decreased risk for lenders).
Example: Let’s compare a 15-year versus a 30-year mortgage for a $320,000 loan with a 6.82% APR, the national average in early April 2024, according to the St. Louis Federal Reserve. (For comparison’s sake, we’re just using one mortgage rate, but keep in mind that 15-year mortgages usually enjoy a lower APR. We’re also not including escrow payments for property taxes, mortgage insurance and homeowners insurance.)
| Mortgage term | Monthly payment | Total interest paid | Total paid |
|---|---|---|---|
15 years | $2,844 | $191,946 | $511,946 |
30 years | $2,090 | $432,553 | $752,553 |
With a 15-year mortgage, you’d save a staggering $240,607 compared to a 30-year mortgage with the same interest rate. However, your monthly payment would be $754 higher with the shorter-term loan.
Pros and cons of 15-year mortgages
| Pros | Cons |
|---|---|
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The primary benefit of a 15-year mortgage is the long-term savings. In our example above, you’d save more than a quarter of a million dollars by choosing the shorter loan term.
Tip: When shopping for a new home, use a 15-year vs. 30-year mortgage calculator to compare the two terms. Freddie Mac’s is free to use.
The interest rate on a 15-year mortgage is also typically lower than what lenders are charging for a 30-year mortgage. That’s because lending money for a longer time carries more risk, and higher interest rates cover the lenders in case repayment goes awry.
In April 2024, the average interest rate on a 15-year mortgage was about 0.75 percentage points lower than a 30-year mortgage. So, if we reduce the 15-year mortgage rate in our example by 0.75 percentage points (to 6.37%) the monthly payment would go down to $2,765 and total interest paid would be $177,651, resulting in even greater long-term savings versus the 30-year loan.
You also build up equity in your home faster with a 15-year mortgage. Equity is the difference between the home’s appraised value and how much you owe on it. Long-term, you can use that equity for a cash-out refinance or home equity loan (or line of credit), or to ditch mortgage insurance payments.
“A 15-year note almost immediately starts to pay down principal balance whereas a 30-year mortgage spends almost the first 10 years paying interest with barely any of the principal being touched,” said Misty Garza, a Texas-based certified financial planner.
The biggest drawback to a 15-year mortgage is the higher monthly payment, which means you have less money available to save for financial goals such as retirement or a child’s college education.
The higher payment can also limit how much house you can afford. With the lower payments of a 30-year loan, you could qualify for a more expensive house.
Pros and cons of a 30-year mortgage
| Pros | Cons |
|---|---|
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The biggest advantage of a 30-year mortgage is that it makes buying a home more affordable. With the lower payments, you can qualify for a bigger loan, allowing you to buy a more expensive home that might better serve your family’s needs.
Related >> What is a jumbo mortgage?
Another benefit of smaller monthly mortgage payments is that you have more money available to save, invest or spend. Alternatively, you could use that extra money to pay off your home loan early, allowing you to save on total interest paid.
One disadvantage to a 30-year loan is that your equity grows slowly. If you sell the home when you have little equity, you’ll have to use most of the sales proceeds to repay the lender.
Finally, a 30-year mortgage costs more because it has a higher interest rate than a 15-year loan, and the total interest paid will be much higher.
Is a 15-year or 30-year mortgage right for me?
The answer to the 15-year versus 30-year question depends on your personal situation. Your cash flow is an important consideration, Garza said. For example, if you have a variable income — perhaps you’re self-employed — you might decide it’s unwise to lock in a higher monthly payment.
If your income is more static and you plan to keep the home forever, Garza suggested a 15-year mortgage to limit the total interest you pay.
If you don’t have a lot of savings to cover emergencies (such as large medical bills), however, a 30-year term is the “better alternative,” said Sean Casterline, a Florida-based chartered financial advisor. The lower payments allow you to build savings to cover emergencies.
| Scenario | Best option |
|---|---|
You prioritize long-term savings over short-term breathing room in your budget | 15 years |
You crave flexibility in your budget, even at the long-term cost of accruing interest | 30 years |
You aim to build equity quickly | 15 years |
You’re seeking to buy a higher-cost home | 30 years |
You want a lower monthly payment so you have more funds to invest | 30 years |
Lenders that offer these mortgage terms
Fortunately, 15- and 30-year home loan terms are widely available. In fact, all of the best mortgage lenders (from CNN Underscored Money’s December 2023 survey) offer both of these terms (with the exception of Veterans United Home Loans, which offers 20- and 30-year terms). In case you’re ready to start shopping around, perhaps even get preapproved, consider these top-rated lenders:
| Lender | Rating | Best for… | 30-year mortgage rate compared to national average* |
|---|---|---|---|
Guaranteed Rate | 4.7 | Home loans overall | Lower |
Veterans United Home Loans | 5 | Military borrowers/VA loans | Lower |
Alliant Credit Union | 4.5 | Credit union home loans | Higher |
Homefinity | 4.3 | Low down payments | Lower |
Pennymac | 4.3 | FHA loans | Higher |
Bank of America | 4.2 | National bank mortgages | Higher |
Wells Fargo | 4.2 | Conventional loans | Lower |
Chase | 4.1 | Customer discounts | Higher |
PNC Bank | 4 | First-time homebuyers | Lower |
SoFi | 3.9 | Customer experience | Lower |
* Rates as of April 3, 2024
3 alternatives to 15-year and 30-year mortgages
1. Make extra payments on a longer term
Take out a 30-year mortgage and make additional payments to pay off your mortgage early. You could pay a set amount (beyond your minimum payment) each month, or simply send extra money when your budget allows.
You might also consider biweekly mortgage payments, or submitting half of your monthly dues every two weeks. With this method, you’ll end up making the equivalent of one extra mortgage payment per year.
“Essentially, you’re paying a bit more in interest, but you will still pay off the mortgage in a shorter time frame with more financial flexibility,” Casterline said.
Tip: Direct your lender to apply extra payments to the principal of your loan balance. The faster you pay off the principal, the sooner you’ll retire the loan and the less interest you’ll pay. But before you start speeding up repayment, confirm that your mortgage doesn’t have a prepayment penalty.
2. Consider other repayment terms
While 15- and 30-year mortgages are the most common, some lenders offer mortgages for other terms, such as 10 or 20 years — there are even 40-year home loans. The advantages and disadvantages of these loans are similar to 15- and 30-year loans. The longer you pay off your home loan, the more you pay in interest and the lower your monthly payments will be.
Again, using a free online mortgage payment calculator can help you estimate the short- and long-term costs of each term length.
3. Refinance (or recast your loan) to a shorter term in the future
If you choose a 15- or 30-year term now but regret it later, you could always change your term, albeit at potentially significant costs. There are a couple of common ways to do this.
Through mortgage refinancing, you replace your current home loan with a new one, ideally with your preferred term and a lower interest rate. If you can’t land a lower rate, refinancing is likely the wrong move unless you’re in desperate need of a longer term and the more affordable monthly dues it might deliver. Also, don’t forget to account for closing costs, which amount to 2% to 6% of the refinance loan amount.
Tip: To determine whether the cost of refinancing is worthwhile, calculate your break-even point, or the juncture at which refinancing savings would outweigh the costs. Here’s a simple formula to follow: refinancing costs / monthly payment savings = number of months to break even.
A possibly simpler solution to changing from a 30- to a 15-year term, or vice versa, is mortgage recasting. Through recasting, if your lender allows it, you’d make a large lump-sum contribution toward your balance, and your lender would reamortize your loan schedule. Unlike with refinancing, your interest rate wouldn’t change, but your monthly dues would be lower, thanks to the reduced loan principal. This could be the better route if you have a Covid-19-era mortgage rate below 5% and don’t want to risk losing it via refinancing.
Frequently asked questions (FAQs)
Use a mortgage refinancing calculator (such as Fannie Mae’s) to see how much money refinancing would save over the life of the loan compared to what you’d pay with your existing loan. Account for closing costs (about 2% to 6% of your refinanced loan amount) in your savings estimate.
Make extra payments marked “apply to principal” to pay your loan off early. Leverage windfalls, such as annual tax refunds or employment bonuses, as lump-sum payments, too.
The rate on a 15-year mortgage is generally lower than on a 30-year mortgage. The average APR on a 15-year term was about 0.75 percentage points lower than that on a 30-year term, as of April 2024.
The longer the duration, the lower the monthly payments because you’re spreading repayment over a longer period.
If you itemize your deductions, you can deduct mortgage interest for home loans up to $750,000 no matter the loan duration, depending on when you took out the loan. When you pay more interest, you get a higher tax deduction. Consult a certified financial adviser to see if the tax deduction is worth paying more interest.
