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Deciding whether to pick a 15- or 30-year mortgage largely boils down to what kind of monthly payment you can afford and whether you need financial flexibility.
There’s a reason that the 30-year fixed-rate home loan is by far the most popular. It offers manageable payments that ideally allow room in the budget for other needs and wants.
But borrowers who can afford higher monthly payments and would prefer a lower interest rate may find 15-year mortgages compelling.
Key Points
• A 15-year fixed-rate mortgage allows borrowers to pay off their loan faster and save significantly on total interest compared with a 30-year loan.
• The trade-off is much higher monthly payments than for a comparable 30-year mortgage.
• 15-year mortgages typically carry lower interest rates, which further reduces overall borrowing costs.
• 30-year mortgages offer lower monthly payments, which can improve cash flow but result in significantly higher total interest over time.
• Choosing between a 15-year and 30-year mortgage depends largely on your budget, cash flow needs, and long-term financial goals.
How Does a 15-Year Mortgage Work?
When choosing a mortgage term, borrowers who opt for a 15-year fixed-rate loan over a 30-year fixed-rate loan will pay it off faster and save significantly more in interest over the life of the loan. Variable-rate mortgages can be useful in certain situations, but comparison requires more customized calculations, and we will not discuss them here. The main trade-off if you choose a 15-year loan is a significantly higher monthly payment than for a comparable 30-year home loan.
Fifteen-year mortgages typically carry lower interest rates than 30-year mortgages. Consequently, the combination of a lower rate and compressed payoff time means a much lower interest cost overall.
A 15-year mortgage loan for $300,000 with a rate of 4.60% would result in $115,862 in interest paid. The interest on the same loan amount with a 30-year term at 5.80% would be about $333,693, a difference of $217,831.
However, in this example, the basic monthly payment would be $2,310 for the 15-year term vs. $1,760 for the 30-year term. An online mortgage calculator can help you compare how interest rates and term length affect total interest paid and monthly payments.
Lenders charge lower rates for 15-year mortgages because they cost less to underwrite than 30-year loans. Generally speaking, the longer the term of a loan, the riskier it is to lenders, and they price this into the loan through a higher interest rate.
Here are the main pros and cons of 15-year mortgages.
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Pros:
• Interest cost savings
• Faster loan payoff
• Lower interest rate
• Equity built at a faster rate
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Cons:
• Significantly higher monthly payments
• Less cash available for other opportunities
• Smaller range of homes in budget, thanks to higher monthly payments
When to Consider a 15-Year Fixed-Rate Mortgage
You might want to consider a 15-year fixed-rate mortgage if you’re trying to pay off the loan faster, you want to save on total interest paid, want a lower rate, and can afford the higher monthly payments.
If you’re buying a home close to retirement and are interested in building generational wealth, a 15-year mortgage is also an attractive option as it ensures a faster payoff.
The 15-year mortgage is more frequently used for refinancing than buying, thanks to the lower rate and because most borrowers who choose to refinance are usually several years into their loan.
Consequently, borrowers who have longer-term mortgages with higher interest rates may want to consider refinancing to a 15-year home loan to save on interest costs. However, if you qualify as a first-time homebuyer or are already on a fairly tight budget, a 15-year mortgage might be more than your family finances can handle.
First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.
30-Year Mortgage vs 15-Year Mortgage
Borrowers will find the payments on 30-year mortgages to be much more affordable than on 15-year mortgages. The longer the repayment term, the lower the monthly payment, potentially leaving more cash in your pocket every month.
Increased cash flow may allow borrowers to pursue other opportunities, such as preparing for retirement or shoring up emergency savings. Paying off higher-interest debt is also a good plan.
Homeowners may want to have enough cash to add or expand a home office, renovate the kitchen, and generally maintain the value of their home.
What about vacations and buying stuff? Yes and yes.
And some borrowers will also want to set up a college fund.
Like most things, 30-year home loans have upsides and downsides to consider.
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Pros:
• Lower monthly payments
• Extra monthly cash to dedicate to other opportunities
• You may qualify for a larger loan amount to afford a more expensive home
• More mortgage interest to deduct if you itemize on your federal taxes
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Cons:
• Higher interest expense than a 15-year loan
• Builds equity at a slower rate
• Longer time to pay off loan
When to Consider a 30-Year Fixed-Rate Mortgage
You may wish to consider a 30-year fixed-rate mortgage if you’re looking for the most affordable option when buying a home.
Fixed-rate 30-year home loans are the most straightforward and common type of mortgage loan on the market.
Given that home prices are relatively high and interest rates have not dropped substantially in recent years, 30-year home loans are often more attractive than other options. Despite the higher overall interest cost, the lower monthly payments on 30-year mortgages make it easier to afford a home.
Borrowers always have the option of paying off a mortgage early. Every extra principal payment reduces your overall loan balance and the amount of interest that compounds over time.
The final thing to consider is that a 30-year mortgage provides a greater tax benefit than a shorter-term mortgage if you take the mortgage interest deduction.
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Recommended: Mortgage Prequalification vs. Preapproval
Should You Choose a 15-Year or 30-Year Mortgage?
For many homebuyers, the choice of 15- vs. 30-year mortgage will not be voluntary: The monthly payments will force the decision.
If you can choose one or the other, you’ll want to calculate whether you’re able to comfortably commit to a series of high monthly mortgage payments in exchange for the earlier loan payoff and interest savings. Consider whether the lower monthly payments of a 30-year mortgage could leave you with spare money that you could put to better use.
Your income level, career stability, and debt-to-income ratio may largely determine your choice.
Recommended: Home Loan Help Center
The Takeaway
Deciding between a 15- vs. 30-year mortgage depends on your personal budget and financial goals. If you can swing the shorter term, you’ll benefit from a lower interest rate, faster loan payoff, and substantial interest savings.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
Is a 30-year mortgage better than a 15-year mortgage?
A 30-year mortgage has lower monthly payments, but a 15-year loan will have less interest over the life of the mortgage. Which is better is a matter of personal choice and affordability.
Is it better to pay off my mortgage for a long period?
If your monthly budget is fairly tight or you have other debts you need to pay off, yes. You’ll pay a lot more in total interest with a long-term home loan than you would with a shorter-term one, but payments will be more affordable.
Can I pay off my 30-year mortgage in 15 years?
Yes, you can pay off the balance ahead of schedule but read your mortgage documents first. Some loans have a prepayment penalty that you will need to factor into your decision.
Are the interest rates for a 30-year mortgage higher than a 15-year mortgage?
Yes, the interest rates for 30-year mortgages are typically higher than 15-year mortgages. Lenders increase the interest rate because of the extra risk of longer-term loans.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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