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Your monthly mortgage payment will probably be the largest line item in your budget. One way to control your payments is by comparing 15- and 30-year terms. A shorter schedule requires a larger payment but allows you to pay off the loan faster, while a 30-year schedule lowers your monthly payment but costs more in interest in the long term. Learn more about how terms change your monthly costs using our mortgage calculator.
15-year vs. 30-year mortgages: What is the difference?
Standard lending practices defer to the 30-year, fixed-rate mortgage as the go-to for most borrowers buying a home because it allows the borrower to spread loan payments out over 30 years, keeping their monthly payment lower, despite paying more in total interest for the loan.
With a 15-year mortgage, however, borrowers can pay off their loan in half the time — if they’re able and willing to bump up the amount of their monthly loan payment. The primary difference between qualifying for a 15-year versus a 30-year mortgage is that you’ll need a higher income and lower debt-to-income ratio to obtain the former, because the monthly payments are higher.
For example, on a $300,000 mortgage with a 6.5 percent interest rate, your monthly payment would total $1,896 for 30 years. You’d spend $382,633 in mortgage over the course of 360 monthly payments.
A 15-year mortgage carries a lower mortgage rate. So, with a $300,000 15-year mortgage at a rate of 5.75 percent, the monthly payment would total $2,491, or $148,421 in interest over the life of the loan.
Despite a lower rate, your monthly payments will almost always cost less with a 30-year mortgage compared to a 15-year mortgage.
“The longer the term, with everything else being equal, the lower the payment amount because the mortgage amount is amortized over a longer period,” says Teri Williams, president and chief operating officer of OneUnited Bank, adding that along with a more favorable interest rate, a 15-year mortgage would also have a lower annual percentage rate, or APR, than a 30-year mortgage.
15-year vs. 30-year mortgage example
The difference between a 15- and 30-year mortgage can be significant. Below is an example of the options on a $300,000 loan. We’ve assumed 6.5 percent interest on the 30-year term and 5.75 interest on the 15-year term, based on Bankrate’s national survey of lenders as of Dec. 14.
| Mortgage Term | Monthly Mortgage Payment | Total Cost Of Mortgage Interest | Total Cost Of Mortgage |
|---|---|---|---|
| 30-year at 6.5% | $1,896 | $382,633 | $682,633 |
| 15-year at 5.75% | $2,491 | $148,421 | $448,421 |
15-year mortgage pros and cons
A 15-year mortgage might sound like a more attractive option. You’ll likely save a bundle in interest and pay off your home faster. Still, there are trade offs to consider.
Pros of a 15-year mortgage
- Interest rate is typically lower
- Much less interest paid over life of loan
- Loan is paid off sooner
- Builds equity faster
- Underwriting may be more lenient due to less risk
- Bigger payments could help deter spending elsewhere
Cons of a 15-year mortgage
- Monthly payments are higher
- Can be harder to qualify for
- Less wiggle room in budget for emergencies
30-year mortgage pros and cons
A 30-year mortgage may give you more breathing room in your monthly budget, and it’s generally easier to qualify for. But you’ll pay far more in interest.
Pros of a 30-year mortgage
- Monthly payments are lower
- Flexibility to pay back the mortgage sooner
- Potentially more money available for emergencies month to month
- Lower income qualifications
Cons of a 30-year mortgage
Include a bulleted list of cons
- Interest rate is typically higher
- Loan takes longer to pay off
- Temptation to spend money saved
- Much more interest paid versus a shorter-term loan
Is a 15-year or 30-year mortgage right for you?
Bankrate’s mortgage calculator can help you estimate monthly payments for a 30-year versus a 15-year mortgage so you can get a clearer picture of how much you can afford based on your income.
Keep in mind that the requirements for a 15-year mortgage could be a concern for individuals whose income is seasonal or commission-based.
“The consumer also needs to consider the reliability of their income and debt levels,” according to Rocke Andrews, immediate past president of the National Association of Mortgage Brokers.
With any mortgage, you can always make higher or more frequent payments to pay off the loan sooner. Most prepayment penalties go into effect only if the borrower pays off the mortgage, or a significant portion of it, within the first five years of the loan.
“If there is no prepayment penalty, which is the norm today, you can pay back the mortgage sooner by making additional payments beyond the minimum payment,” says Williams.
If you do decide to make extra payments, instruct your mortgage lender to apply the funds to the principal or the last payment due. This’ll reduce the interest payable on the balance. There’s generally no limit to how many extra payments you can make (or how often you can make them), so if you have fluctuating income, this can be the next best strategy to a 15-year mortgage.
If you have enough money to make extra mortgage payments, Andrews says it’s worth looking at whether you want to invest that money somewhere else that offers a higher return instead — assuming that investment is relatively lower-risk, since paying off your mortgage is typically less risky than other endeavors.
Also, consider how long you plan to stay in your home versus the duration of the mortgage you’re considering. If your goal is to get as low a payment as possible for a short period of time (i.e., less than five years), you might want to explore an interest-only mortgage.
“Many people sell their home before 15 to 30 years and pay off their mortgage before the end of the term, so the mortgage term may be less important,” says Williams.
Ultimately, what should drive your decision is what payment you can afford, and whether or not a larger payment would curtail other important financial moves, like saving for retirement.
Alternatives to 15-year and 30-year mortgages
Some lenders offer other terms for a mortgage. If you want to be aggressive in your payments, for instance, you can ask for a 10-year mortgage. Plus, banks sometimes permit a 20-year mortgage.
You may also be able to extend your mortgage for 40 years, though a 40-year mortgage is harder to come by since most financial lenders don’t offer them on a regular basis. If you do go for a longer mortgage term, you may want to refinance down the line.
