How to Choose Between a 15-Year and 30-Year Mortgage

One of the most important parts of taking on a mortgage to buy a house is making sure the terms of the loan best suit your financial needs. Not only does this involve securing the lowest interest rate possible, it also means choosing the right mortgage term.

The mortgage term tells you how much time you have to repay your loan in full. The two most common home loan terms borrowers typically find themselves having to pick between are 15-year and 30-year mortgages, though some lenders will let you take on terms as low as eight or 10 years.

These 15-year and 30-year mortgages each come with their own advantages and disadvantages, so it’s important to make the choice that’s best for your financial goals.

Below, Select takes a closer look at the trade-offs of 15-year and 30-year terms on a home loan and what you should consider if you’re choosing between them.

Generally, the longer the life of your loan (or loan term) is, the lower your monthly payments will be. That’s because borrowers repay their home loans in fixed, equal monthly payments over the entire life of the loan — someone who has a longer time horizon will end up with smaller payments compared to someone with a shorter time horizon for the same loan amount.

Rocket Mortgage, one of the largest home loan lenders in the U.S., uses an example of a $240,000 home loan with a 4% interest rate to illustrate this point. If the borrower chooses a 30-year loan term, they’ll be making a monthly payment of $1,145.80 including principal and interest (insurance and other expenses are not included in this instance). If they choose a 15-year loan term, however, the monthly payment works out to be $1,775.25 — that’s a difference of more than $629.45 a month.

If you anticipate not having enough wiggle room in your monthly budget to take on a higher mortgage payment, it could make more sense to go with a 30-year term so you can have smaller monthly payments stretched out over a longer time horizon.

One major drawback of having a 30-year mortgage is you’ll end up paying more in interest over the life of the loan. Not only will you be charged interest for a longer period of time, lenders will typically also offer slightly higher rates for this option — the faster they can be repaid in full, the better, as the risk that you might potentially default on your payments will be smaller.

Some borrowers may be averse to the idea of paying more interest over time and may prefer to save on those charges by paying a slightly higher amount each month. If saving on interest is your biggest priority, a 15-year mortgage may be a better fit for you.

If you’re looking to get a lower interest rate on your mortgage, make sure you also have a high credit score when applying and consider one of the best mortgage lenders as ranked by Select, like Rocket Mortgage and SoFi.

Home equity is a measure of how much of the property you actually own. Think of it this way: When you take on a mortgage, you’re making a down payment but paying the lender back for the loan they gave you to buy the house.

Being mortgage-free means you’ll have more room in your budget for other things — some homeowners may want to pay off their house as quickly as possible so they can purchase a second property and focus on paying off the mortgage for that instead.

If you want to build equity faster and save on interest but can’t commit to making higher monthly payments on a 15-year mortgage, you can try to make extra mortgage payments to help pay off the loan faster. This works best as long as your mortgage lender doesn’t charge prepayment penalties for paying off the loan early.

If you’re still not sure where to start when it comes to finding a lender to work with, Select rounded up a few that cater to a variety of needs. Ally Bank, for example, doesn’t charge lender fees, which can help borrowers save a bit of money upfront during the homebuying process.

Chase Bank, among other popular lenders, also offer a jumbo loan option for those who may need to borrow more than $647,000 to purchase their home.