Choosing Between a 15-Year vs. a 30-Year Mortgage Term

As a prospective homebuyer in need of financing, there are many decisions ahead of you, from selecting the best mortgage lender for your needs to choosing a type of mortgage and a loan repayment term.

And when it comes to loan terms, you can find almost as many options as lenders and loan types. The most popular, however, is the 30-year mortgage term. Coupled with a fixed rate, this option gives borrowers predictable — and affordable —  monthly payments.

But a longer loan term isn’t without its drawbacks, and the fact that it’s the go-to option for 90% of borrowers doesn’t necessarily mean it’s right for you. Read on to learn more about the 30-year mortgage and another popular option, the 15-year mortgage.

Table of contents

• What is a mortgage term?
• What’s the difference between a 15-year and a 30-year mortgage?
• 30-year mortgage
• 15-year mortgage
• When to refinance to a 15 or 30 year mortgage
• 15 vs. 30-year mortgage FAQ
• 15 vs. 30-year mortgage summary

What is a mortgage term?

A mortgage term is the duration of your home loan or the timeframe during which you’ll be expected to make monthly mortgage payments to your lender. At the end of that loan term, you will have paid off your mortgage completely — provided you have made all of your regularly scheduled payments.

While the most popular mortgage loan term spans 30 years, other options include not only the 15-year mortgage but those with 10-, 20- and 25-year terms. Some lenders allow borrowers to select a custom loan term, while others offer terms under 10 years or (more rarely) over 30.

The mortgage term you select directly influences the following:

• Your interest rate – Loans with shorter terms carry less risk for lenders, as the borrower’s ability to repay the loan is less likely to change over a shorter period of time. For this reason, shorter loan terms often feature lower interest rates.
• Your principal and interest payments – Longer mortgage terms often translate to lower principal and interest payments. (Those are only one part of your monthly mortgage payment, as payments may also include homeowners insurance premiums and other costs.) This is because your mortgage balance is spread over a longer period.
• How much interest you pay over the life of the mortgage – Opting for a shorter mortgage term can save you thousands of dollars over the duration of your loan. Shorter-term loans typically feature lower rates, plus you would be making fewer interest payments over that shorter period. The opposite is true for long-term loans.

What’s the difference between a 15-year and 30-year mortgage?

The main difference between a 15-year mortgage and a 30-year mortgage is, of course, that the latter will take you twice as much time to pay off. That makes 30-year mortgages more affordable at first glance, as the loan balance spread over an extended period will make for lower monthly principal and interest payments.

However, a 30-year mortgage will cost you thousands of dollars more in the long run. Not only will you make more interest payments over those 30 years, but interest rates on these loans are often higher (as the risk of a borrower defaulting increases over time). In fact, according to the Consumer Financial Protection Bureau (CFPB), interest rates on short-term loans can be lower than those on long-term loans by as much as a full percentage point.

So, since you can pay off a 15-year mortgage in half the time it would take you to pay off a 30-year loan, your total interest paid over the life of the loan would be considerably less. The catch, of course, is that your monthly principal and interest payments would be higher with a 15-year mortgage, as the loan balance is spread over a shorter period.

Here’s an example of how much more you can pay in interest on the longer mortgage option:

Loan Term	Loan Amount	Interest Rate	Monthly Principal & Interest Payment	Total Interest Paid
15-year fixed-rate	$280,000	4.67%	$2,166	$109,304
30-year fixed-rate	$280,000	5.51%	$1,592	$292,406

The example above assumes a property value of $350,000 and a 20% down payment. At current interest rates, someone who opts for a 30-year fixed-rate mortgage will pay $183. That amounts to $102 more for borrowing the same loan amount as someone who opts for a 15-year fixed-rate mortgage.

Fixed-rate vs. adjustable-rate mortgages (ARMs)

As the name suggests, interest rates on fixed-rate mortgages remain the same for the life of the loan, which makes for predictable principal and interest payments. While monthly mortgage payments on 30-year loans may increase or decrease, any fluctuation will be due to changes in property taxes or homeowners insurance premiums.

Rates on ARMs, on the other hand, generally start lower than their fixed-rate counterparts and reset periodically after an initial fixed period. Consequently, the principal and interest payments on these loans are less predictable and may decrease or increase (by as much as double) when rates adjust.

According to the CFPB, adjustable-rate mortgages may be a good option for borrowers who plan to sell their home within their loan’s initial fixed period. Those who want the predictability of fixed payments and plan to live in their home for the long haul may be better served by a long-term loan.

30-year mortgage

15-year mortgage

When to refinance to a 15- or 30-year mortgage

Refinancing to a shorter loan term to save on interest may seem like a no-brainer if you’re in a better financial position than you were at the start of your mortgage. However, before you make any decisions, you should consider these two things:

1. Potential savings – Check current mortgage refinancing rates against your mortgage rate and determine if the reduction is considerable. According to experts, a rate drop of a full percentage point often justifies refinancing, especially if you plan to stay in your home for some time.
2. Your break-even point – Refinancing is essentially taking out a new loan, which could cost you thousands of dollars on closing costs and fees. Before taking the plunge, look at potential savings against the total cost of refinancing. This comparison is called the break-even point, and you can calculate it by dividing the closing costs on your new loan by your monthly savings after refinancing. The result will be the number of months it will take you to recoup the costs of refinancing, and the shorter that period, the better.

Also, remember that there are other loan term options to choose from, so you don’t necessarily have to refinance to a 15-year term if 20 or 25-year terms are available. Similarly, you may refinance to a longer loan term if you’re finding it hard to keep up with your mortgage payments.

And if your credit situation hasn’t improved — or has worsened — since taking out your mortgage, you may still qualify for refinancing. To learn more, read our article on how to refinance a mortgage with bad credit.

Yet another option for those looking to save on mortgage costs is recasting. Recasting entails making a lump-sum payment toward your principal mortgage balance, after which your lender will re-amortize the loan. This process can lower your mortgage payment without altering your interest rate or term.

Summary of 15- vs. 30-Year Mortgages

• Your mortgage term is the time you have to repay your home loan.
• There are many mortgage terms to choose from, the most common being 30, 20 and 15 years. Some lenders offer loan terms under 10 years or over 30, and others even allow borrowers to choose a custom term length.
• The main advantage of a 30-year loan term is that your monthly principal and interest payments will be more affordable, allowing you to qualify for other types of loans or set money aside for other investments.
• The main disadvantage of a 30-year term is that you will pay thousands of dollars more on interest than if you choose a shorter term.
• The main advantage of a 15-year loan term is that you’d be paying off your mortgage in half the time, saving thousands on interest and increasing the number of years you are mortgage-free.
• The main disadvantage of a 15-year term is that you’ll have a higher payment, increasing your risk of defaulting on your mortgage if your finances change and allowing you very little extra money for other investments during the loan term.
• While interest rates on 30-year fixed-rate mortgages are generally higher, these types of loans are safer for borrowers and therefore favored by 90% of them.
• If you opt for a 30-year mortgage, you may still refinance to a shorter loan term down the road or make additional principal payments to pay off your loan faster.
• If you’re ready to take the plunge and apply for a home loan, check out our article on how to get pre-approved for a mortgage.