15-Year vs. 30-Year Mortgages

Pros and Cons of 15-Year Mortgages

Before deciding if you'd like to go with a shorter-term loan like a 15-year mortgage, weigh the potential pros and cons:

15-Year Mortgage Advantages

Potential advantages of a 15-year mortgage include:

• Lower interest rates: A 15-year mortgage most often has lower interest rates than a 30-year mortgage and can help you save money on interest by paying off your mortgage faster.
• Faster equity growth: You can generally build your home's equity more quickly with a 15-year loan.
• Fewer mortgage payments: You'll own your home in 15 years, meaning less time will pass before you'll be able to wrap up what's likely your most costly monthly expense.

15-Year Mortgage Disadvantages

Potential drawbacks of a 15-year mortgage include:

• Higher monthly payments: A 15-year mortgage generally has a higher minimum monthly payment than a 30-year mortgage. This is because you're paying back the same principal balance (the original amount you borrowed) over a shorter period of time.
• Stricter income requirements: Qualifying for a 15-year loan can be harder than qualifying for a 30-year loan. The higher monthly payment of a 15-year mortgage still needs to fit into an acceptable debt-to-income ratio. Lenders will want to ensure you have enough money to cover the higher monthly expense.
• Less financial flexibility: With 15-year mortgages requiring a larger amount of your monthly income, you won't have as much money left over for other financial goals you might want to pursue, like saving or investing.

Pros and Cons of 30-Year Mortgages

While the most common type of mortgage is a 30-year loan, consider the pros and cons of this option before deciding whether it's your best choice.

30-Year Mortgage Advantages

Potential advantages of a 30-year mortgage include:

• Lower monthly payments: The primary benefit of a 30-year mortgage is the lower minimum monthly payment. This can make buying a home more affordable and give you more flexibility in your monthly budget for other bills and expenses.
• Less strict income requirements: Because these loans have lower monthly payments, the payments may fit more easily into a maximum debt-to-income ratio.
• The option to pay it off sooner: Whenever your financial situation allows for it, you can still make strides toward paying your mortgage down or off sooner.

30-Year Mortgage Disadvantages

Potential disadvantages of a 30-year mortgage include:

• Higher interest payments: You'll typically face a higher interest rate and pay more money in interest over the life of the loan than you would with a 15-year mortgage.
• Slower equity build-up: With a 30-year mortgage, a larger portion of your earliest payments goes toward interest rather than principal for longer than with a 15-year mortgage, so it takes longer to start building significant equity.
• More time spent in debt: You'll wait longer to pay the loan off, which can delay reaching long-term financial goals like retiring early or becoming completely mortgage-free.

15-Year vs. 30-Year Mortgage Example

To see how a 15- or 30-year mortgage might look in real life, check out this hypothetical example showing each term with a $320,000 loan.

Hypothetical example for illustrative purposes only; not a commitment to lend or an offer of currently available terms. Rates, payments, terms, and savings shown are hypothetical figures selected solely to illustrate how mortgage costs and terms can vary, and do not reflect an actual loan offer.

In this example, a 15-year mortgage, a borrower could save around $250,000 in interest over the life of the 15-year loan compared with a 30-year mortgage —even though the monthly payments are higher. That's because, with a 15-year mortgage, the loan term is shorter and often at a lower interest rate, reducing the interest expense over time.

Check out our 15- vs. 30-year mortgage calculator to get a personalized estimate for interest and monthly payments.

How To Pay Off Your 30-Year Mortgage Early

If you decide a 15-year mortgage's higher payments might strain your budget more than you're comfortable with, there are options that can help you pay your 30-year mortgage off faster than scheduled and save money on interest. This way, you could enjoy some of the advantages that both 15- and 30-year mortgages have to offer.

Pay More Each Month

Most lenders will allow you to pay them more each month than the minimum that's required, which means you can get a 30-year mortgage but make payments that are perhaps more like the payments you would make on a 15-year mortgage. You can add to each monthly payment when you're able, or you can apply funds one month from an unexpected cash windfall, like a bonus you get at work. Tell your loan servicer to direct these larger payments toward your mortgage principal and they can help you pay down your mortgage faster.

Refinance a 30-Year Mortgage into a 15-Year Mortgage

Homeowners often refinance from a 30-year to a 15-year loan when their incomes have gone up and the higher minimum monthly payments are more affordable. Refinancing to a shorter term means you could pay the loan off several years sooner and benefit from some of the savings that 15-year mortgages offer. You can usually make extra mortgage payments on 15-year mortgages, too.

Pay Biweekly

Instead of making one monthly payment, you could pay biweekly. This results in 26 payments, or 13 months of payments each year instead of 12, shortening your loan's term over time. Not every lender offers this option, though, so check with your mortgage servicer to see if paying biweekly is something you could do.

Recast Your Mortgage

A mortgage recast is when you make a large, one-time payment toward your mortgage principal. This reduces your overall loan balance and typically results in lower monthly payments after your lender recalculates and restructures your loan schedule. Check with your loan servicer about the availability of this option.

Final Thoughts: Is a 15-Year or 30-Year Mortgage Right for You?

Both 15- and 30-year mortgages offer certain benefits and drawbacks, so you'll want to look at the big picture of your finances when deciding which is the right option. In particular, think about whether a lower monthly payment or saving money in interest over time is more important to you right now.

If you opt for a 30-year mortgage, you can still potentially take steps toward paying it off sooner and benefit from the savings this strategy has to offer. Get started with Freedom Mortgage today and let us help you find the right loan term for you.