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If you’ve been shopping for a home, you’ve likely had to learn some new lingo. For instance, a 4/2 refers to a four-bedroom, two-bathroom house; the amount of time that a house has waited for buyers may be abbreviated DOM (days on market).

Shopping for a mortgage has its own linguistics — and the 7/6 ARM meaning can be inscrutable at first. The quickest definition: A 7/6 ARM is an adjustable-rate mortgage with an interest rate that remains fixed for seven years, before changing once every six months for the remainder of the loan term.

But who benefits from a 7/6 ARM, and what are its downsides? Good thing you asked — we’ve got answers below.

Explaining the 7/6 ARM

ARMs (adjustable-rate mortgages) are different from more common fixed-rate home loans because — you guessed it — their interest rate adjusts over time based on market conditions. However, the lender can’t just bounce the interest rate around willy-nilly. There are guidelines and, thankfully, caps in place. Here’s how it works:

Initial Fixed-Rate Period

As mentioned above, a 7/6 ARM has an initial fixed-rate period of seven full years. That’s what the “7” refers to — and what the number in place of the 7 refers to in other advertised ARMs. (For example, a 5/1 ARM has a five-year initial fixed interest rate; for the remainder of the loan, rates can be adjusted once per year.)

Because the interest rate will begin to adjust once the initial period is up, borrowers can often qualify for a lower interest rate during this initial fixed period than they otherwise would with a traditional fixed-rate mortgage (whose interest rate and monthly payments will be identical for the life of the loan).

Adjustment Period

The adjustment period is what begins once that initial fixed-rate period is over — so for a 30-year 7/6 ARM, the adjustment period lasts 23 years. (Most ARMs have 30-year terms; in fact, 30-year terms are the average mortgage term length among U.S. borrowers.)

During the adjustment period, the interest rate can be adjusted. For a 7/6 ARM specifically, adjustments can happen up to once every six months. That’s what the “6” refers to.

Interest-Rate Caps

Some good news for those who take out ARMs: Although rates can be adjusted (and, yes, go up if market conditions swing that way), there are built-in limits. For instance, you might see an adjusted-rate mortgage advertised the following way: 7/6 ARM 5/1/5. Don’t let the additional numbers scare you! They simply refer to the interest rate caps and floors.

In this example, the first “5” means 5.00% is the most your rate could rise or fall during the first adjustment, while the “1” caps how many percentage points it can rise and fall during each subsequent adjustment after that. Finally, the last “5” indicates that your loan’s rate won’t rise or fall more than 5.00% at any point over the lifetime of the loan. So, for instance, if your initial fixed rate was 6.00%, this cap means the rate will never be lower than 1.00% or higher than 11.00%.

Recommended: Mortgage Calculator

Pros and Cons of a 7/6 ARM

Now that you understand how a 7/6 ARM works, let’s talk about who it best works for — and when.

Advantages of a 7/6 ARM

The main benefit of an ARM is its lower initial interest rate — and 7/6 ARMs have one of the longest initial fixed-rate periods. While the rate may later shoot up by as much as 5.00% (or whatever your loan’s interest rate cap is), many people take out ARMs with the intention of using the lower interest rate to pay off the loan as quickly as possible — ideally before the adjustment period kicks in at all.

Disadvantages of a 7/6 ARM

The disadvantages of a 7/6 ARM are related to its benefits. While 7/6 arm rates initially may be low, rates may get much higher in the adjustment period. If you don’t successfully pay back the loan before it begins, you may find yourself with much higher monthly payments — and since it’s hard to predict what your financial circumstances will be seven years down the road, this can be a risky bet to make.

Qualifying for a 7/6 ARM

So, what does it take to successfully qualify for a 7/6 ARM? While each home loan lender has its own requirements as part of the mortgage process, there are some basic rules of thumb to be aware of.

Credit Score Requirements

For starters, most lenders have a credit score floor of 620 for ARMs. (If you can qualify for a government-backed type of mortgage, such as an FHA loan or VA loan, that credit score floor may be lower.)

However, your credit score isn’t the only factor lenders assess when qualifying you for a loan. They’ll also look into your income and verify your employment, as well as considering your debt-to-income ratio or DTI — the measure of how much of your gross income each month is already tied up in making loan payments. In most instances, you’ll need a DTI ratio of 50% or less to qualify for an ARM.

When to Consider a 7/6 ARM

Given the specific risks and benefits of a 7/6 ARM, in what circumstances do they work best?

Those who are confident they’ll be able to pay off the loan before the initial fixed-rate period elapses could be well served by the upfront interest savings of this type of loan. Additionally, those who plan to sell their home within that initial seven-year period may also get the benefits of lower interest rates without following through on the adjustable-rate period.

Finally, people who are betting on a rise in income over the initial seven-year period may also be confident enough to take out a 7/6 ARM — but given how much higher your monthly payments could go at that time, this is a gamble best made with a lot of forethought.

Alternatives to a 7/6 ARM

Those who are interested in a 7/6 ARM might also consider ARMs with other terms, such as a 5/1 ARM or a 10/6 ARM.

Fixed-rate mortgages are also an option — one that offers predictability in both interest rate and overall payment amount. Of course, that interest rate may not be as low as the initial fixed rate period of an ARM.

Recommended: Choosing a Mortgage Term

The Takeaway

A 7/6 ARM is an adjustable-rate mortgage with a seven-year-long fixed-interest-rate period, followed by an adjustment period where the rate can change every six months. ARMs can be risky for those who plan to keep the mortgage for its entire term, but for those who plan to sell their home or pay off the mortgage before the initial fixed-rate period elapses, they can be money-savers.

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

How is the interest rate on a 7/6 ARM calculated?

The interest rate on a 7/6 ARM — like any mortgage loan — is calculated using a wide variety of factors, including market conditions, the federal interest rate, the creditworthiness of the borrower and more. However, with an adjustable-rate mortgage specifically, that rate can change over time (sometimes tracking specific market indices). For the best information on how your loan is calculated, talk directly with your mortgage lender.

What happens when the initial fixed-rate period ends?

When the initial fixed-rate period of an adjustable-rate mortgage ends, the rate begins to be, well, adjustable — which means it can be changed (within the confines of the rate caps, floors, and adjustment intervals listed in the loan agreement). For example, with a 7/6 ARM, after the initial seven-year fixed interest period, the rate can be adjusted once every six months for the remainder of the loan’s term.

Can I refinance a 7/6 ARM before the adjustment period?

Yes, you can refinance a 7/6 ARM — or most any ARM — before the initial fixed-rate period is over and the adjustment period begins. However, it’s important to consider that refinancing comes with its own costs (which, like initial closing costs, can easily rack up to 3% or more of the total home value), so factor in those expenses when deciding what makes the most financial sense for you.

Photo credit: iStock/Perawit Boonchu

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q324-023

A blanket mortgage is a special type of real estate financing that can be helpful when someone wants to buy multiple properties at once. Developers, investors, and house flippers may find blanket loans beneficial.

Note: SoFi does not offer blanket mortgages at this time.

Here’s more about how they work and their pros and cons.

What Is a Blanket Mortgage?

A blanket loan is a single mortgage loan that uses more than one piece of residential or commercial real estate as collateral.

The borrower can sell one of the properties while keeping the rest under the loan. Then the mortgagor can sell a second property, a third one, and so forth while still keeping the financing intact for the loan’s entire term.

You may be able to negotiate a blanket mortgage that lets you buy, sell, or substitute properties with minimal angst.

Recommended: Investment Property Guide

How Does a Blanket Mortgage Work?

A developer, for example, may find a large lot to subdivide into smaller ones, creating a new housing subdivision, under a blanket loan financing structure.

As general contractors or families buy the individual lot or lots they want to build on, those lots could be released from the developer’s blanket mortgage, with unsold lots remaining under the blanket loan.

As another example, someone who buys fixer-uppers, renovates them, and sells them for a profit may buy several properties of interest and finance them with a blanket mortgage. Each property that is refurbished and sold can be released from the blanket mortgage loan.

If a blanket mortgage comes with a release clause, the proceeds from a property the borrower sells can be used to buy another property.

Lenders can create their own terms, so it’s important to be clear about a loan’s parameters. They will want to know about each of the properties involved, their intended use, where they’re located, and their condition. If a housing development is being planned, the lender will want proof of the borrower’s experience.

Recommended: How to Buy a Multifamily Property With No Money Down

Pros and Cons of a Blanket Mortgage

Each of the different types of mortgages comes with pros and cons. That’s true of a blanket mortgage, too.

Recommended: Home Loan Help Center

Should You Consider a Blanket Mortgage?

Possibly. If you’re qualified and you want to buy multiple properties with one mortgage, selling them and releasing them from the loan as they are individually sold, then a blanket loan may make sense.

Blanket mortgages can be elusive. If a blanket loan seems like a good choice, you can inquire about one with banks that offer commercial loans or talk to a mortgage broker.

Any lender or broker you contact should be able to answer your mortgage questions.

The Takeaway

Blanket mortgages are a specialty type of loan used by developers, real estate investors, and house flippers when they want to put multiple properties under a single loan. Blanket loans have pros and cons. Qualifying for one isn’t for the faint of heart.

FAQ

What is an example of a blanket mortgage?

If someone wants to buy fixer-upper homes to rehab and resell, they may use a blanket loan to purchase several of them at once. As a home gets refurbished and sold, that property is released from the blanket loan while the other properties are still funded.

Is it hard to get a blanket mortgage?

Lenders will typically want a borrower to have sizable assets and excellent credit, and the down payment can range from 25% to 50%. So blanket loans are limited to more established borrowers with solid financials.

Who would most likely obtain a blanket mortgage?

Businesses may apply for a blanket loan to buy commercial property. Landlords, both commercial and residential, may also utilize this type of loan. So can construction companies and people who flip homes.

Is a blanket loan a good idea?

Under certain circumstances, a blanket loan can be a useful form of financing. When purchasing multiple properties with one loan, just one approval is needed. Closing costs may be lower. Interest rates and payments may be more attractive, too. That said, requirements to qualify for this type of loan can be significant, with down payments ranging from 25% to 50%.

Photo credit: iStock/oatawa

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Considering a condo? A condo could be a good choice as a starter home, a retirement nest, an investment property, or a residence for anyone who wants amenities but little maintenance.

You’ll want to weigh the upsides and potential downsides and take these steps before committing to a condo.

What Is a Condo?

When a person buys a condo, as opposed to buying into a co-op, they own the unit in the building or complex, but they don’t own anything outside those four walls. That includes the structure of the building, the roof, and the ground the building sits on.

The parts of the property not owned directly by the condo residents are managed by a homeowners association. The HOA maintains the property with fees collected from residents.

If you’re weighing a condo vs. townhouse, it helps to understand these key differences.

Recommended: Mortgage Prequalification vs Preapproval

What Are the Pros and Cons of Buying a Condo?

Ultimately, the choice to buy a house or condo will be based on the buyer’s preferences and budget.

Pros of buying a condo include:

•   Affordability. Generally, a condo will cost less than a detached single-family home so your monthly home loan payment may be more affordable.

•   Amenities. If it’s important to have access to a pool, gym, dog park, or parking garage, a condo might fit the bill.

•   Lower home insurance and property taxes. Because condo owners aren’t directly responsible for the exterior of the building, home insurance is less than for a single-family home.

•   Low maintenance. Beyond maintaining the immediate residence, condo owners don’t have to worry about mowing the lawn or replacing the roof on their own.

•   Lower utility bills. As condos are generally smaller than single-family homes, there are lower utility bills.

•   City settings. Condos are more likely to crop up in densely populated areas, making them an affordable entry point for owning property in an urban setting.

Is a particular condo within your means? Check out this home mortgage calculator.

There are plenty of upsides when someone buys a condo, but here are some downsides:

•   Privacy. Condos are shared residences with communal space. If buyers value privacy and their own outdoor space, a condo might not be a good fit.

•   Building rules. Condo boards dictate how a building is run, including if units can be rented, what colors can be used on exteriors, and whether pets are allowed.

•   HOA fees. Since maintaining the building is a collective responsibility, condo owners pay monthly or quarterly fees to the HOA. The fees are likely to rise every year. A sizable special assessment may be charged for major repairs.

•   Smaller space. Condos vary in size, but they’re unlikely to be as large as most single-family homes.

•   Slow appreciation. Condos tend to appreciate more slowly than single-family homes, but appreciation is also based on location and the market.

Things to Do Before Buying a Condo

Still not sure if a condo is the right fit? Before figuring out how to purchase a condo, consider these eight steps.

1. Consider Your Lifestyle

A condo could be a perfect fit for highly social people who prioritize proximity over privacy. Since condos tend to be smaller, the ideal condo owner should enjoy the communal offerings of the building, including everything from pools to pickleball.

As condos are often in cities, it could be the right fit if being close to the hustle and bustle is important to a buyer.

People who are downsizing often find a condo a good choice. Buyers who dread upkeep can own a home without mowing a lawn or maintaining a roof.

On the other hand, if a buyer values privacy and space, a condo might clash with their sensibilities. A condo won’t give them that opportunity if they want storage or a garden.

2. Work With an Agent Who Has Experience in Condos

Buying a condo with an agent specializing in single-family homes is like going to the dentist for an earache. Finding the right agent is about personality fit and experience. When interviewing agents, ask about what types of properties they buy and sell regularly. An agent with a lot of experience in condo sales will be more familiar with buildings in the area and their HOAs, amenities, and property management.

3. Consider the Pros and Cons

The perfect property doesn’t exist, so it’s worth weighing the pros and cons of condo living compared with a single-family home that’s not in an HOA community:

4. Decide What Type of Amenities You Want

If a condo feels like the right fit, it’s time to decide which amenities are musts and which are simply nice to have.

Amenities could include:

•   Pool

•   Dog park

•   Fitness center/spa

•   Tennis, pickleball, or basketball courts

•   Covered parking or parking garage

•   Business center/party rooms

•   Rooftop deck

•   Landscape management/gardens

•   Valet

•   Onsite programming or events

Once buyers understand what they need and what they don’t, they can more efficiently narrow down condos in the area based on amenities. Of course, the more amenities, the higher the maintenance fee will be.

5. Find an Approved Condo Community

Condo buyers who qualify for a Federal Housing Administration loan will need to find an FHA-approved condo community, one that meets requirements set by the U.S. Department of Housing and Urban Development. Buyers can search for these properties using HUD’s database.

Buyers wanting to use a VA loan can check a different database.

Most conventional mortgage lenders will require a “limited review” of most condominiums in the form of a questionnaire sent to the HOA. Among the criteria: Ten percent of HOA dues must be allocated to reserves, less than 15% of units must be in arrears with dues, and more than half the units must be owner-occupied.

Want to learn more about mortgages? Visit a help center for home loans.

6. Research the Property Management Company

Diving deep into property management is an important step of what to look for when buying a condo.

Before settling on a property, it’s important to research the property management company hired by the HOA to maintain the building. Consider double-checking on its licensing, reviews, and if there’s any ongoing litigation against the management company.

7. Review HOA Fees and Regulations

Hand in hand with researching the property management company is reviewing the HOA fees and regulations. HOA fees may be charged to condo owners monthly or quarterly, and range from a couple hundred a month to thousands. The fees could cover:

•   General upkeep and maintenance

•   Shared amenities

•   Some utilities

•   Security

•   Future upgrades

•   A master insurance policy to cover liability and repairs for common areas

If possible, request minutes from HOA meetings or inquire about recent hikes in fees. If the HOA doesn’t have much in reserves or is anticipating increases in fees, that can affect a buyer’s monthly housing budget.

In addition to researching fees, take a close look at the covenants, conditions, and restrictions, known as the CC&Rs. HOAs can impose regulations regarding:

•   Pets in the building

•   Renting out property

•   Use of common areas

•   Renovation or maintenance of owner units

Some HOAs have stricter regulations than others. For example, investors may want to avoid buying a unit in a building where rentals, or short-term rentals such as Airbnbs, aren’t allowed.

8. Ask About Special Assessments

Special assessments are one-time payments required of condo owners when reserves won’t cover a major expense. The HOA may require a special assessment if an elevator breaks or the roof unexpectedly begins leaking.

It’s a good idea for any condo hunter to ask when the last special assessment was collected. If there’s a history of frequent payments, it may be a sign of HOA mismanagement. Ideally, the HOA should have money set aside in case of an emergency.

If possible, ask the listing agent for the HOA’s financial statements to reveal how much the building has in reserves. If it’s low, there’s a chance of a special assessment in the future.

Recommended: Tips to Qualify for a Mortgage

The Takeaway

Condo living offers amenities, city living, and affordability. But buying a condo requires research. Working with the right agent and doing due diligence on the condo complex, its HOA, and its management company can help direct your home search.

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

What should you avoid when buying a condo?

Red flags to look for when buying a condo include issues with the HOA and ongoing litigation with the property management company. Condo buyers would be smart to review the building’s financial records for reserve funds, lawsuits, and delinquencies.

Are condos hard to resell?

A condo that’s a good value for the current market and that is in a desirable area will likely not be hard to sell. In general, condos don’t appreciate as quickly as single-family homes, however.

Should you invest in condos?

Investing in condos will generally be less expensive than investing in single-family homes, but it’s worth examining the HOA bylaws to ensure that the condo can be rented out, and for how long at a time.

Photo credit: iStock/Sundry Photography

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

There are a couple ways to pay off a 30-year mortgage in 15 years, including making extra payments toward the principal, making biweekly payments, and more. And paying off a home loan early can save a boatload of interest.

But before you become a mortgage-paying overachiever, there are a few things you need to know about how to pay a 30-year mortgage in 15 years and what to consider before you do. Let’s take a look.

Paying Off a 30-Year Mortgage Faster

When you start paying on a 30-year mortgage, most of your payment will go toward interest rather than the principal (the amount you borrowed). This makes paying down your mortgage and building equity a slow process.

Over time, the percentage of your payment that goes toward interest vs. principal will change. Toward the end of your 30-year loan, you will pay more toward the principal than interest. This is what’s known as mortgage amortization.

Instead of following the amortization schedule, paying more on your mortgage loan — in one way or another — will reduce the principal more quickly, which means you’ll pay less interest overall.

Should You Pay Off Your Mortgage Faster?

Paying off your mortgage faster may give you a sense of accomplishment and save you a lot of money in interest charges, but if it takes you further away from your financial goals, it may not be worth it to you. Consider what you value most before deciding to put extra money toward paying off your mortgage.

Recommended: Is it Smart to Pay Off a Mortgage Early?

Pros and Cons of Paying Off Your Mortgage Early

Paying off a 30-year mortgage in 15 years has benefits, but in some cases, it may not make sense to. Consider these pros and cons.

Factors to Consider Before Paying Off Your Mortgage Faster

While paying off your mortgage early — a few zealous borrowers aim to pay off a mortgage in five years — can save you tens of thousands of dollars in interest, the lost opportunities from not having money readily available for other things could be more valuable. Think about:

•   Have I been contributing enough to my retirement plans as an employee or funding retirement as a self-employed person?

•   Do I have three to six months of expenses, or more, if my personal situation calls for it, in an emergency fund?

•   Am I able to secure a lower rate or shorter term for a refinance to pay off my mortgage faster? Would a cash-out refinance make sense?

•   Do I have higher-interest debt like credit card debt or student loans I should tackle first?

•   Have I set up a college fund (if kids are in the picture)?

•   Does my mortgage carry a prepayment penalty? (This is unlikely for loans originated after January 2014)

How to Pay Off a 30-Year Mortgage Faster

There are at least three methods to pay off a 30-year mortgage in 15 years if that’s your goal.

Make Extra Principal Payments

Paying more toward principal is the primary way to pay off a 30-year mortgage early.

Here’s an example of how interest adds up: Assuming you buy a $350,000 house and put 10% down on a 30-year mortgage at 5.5%, this mortgage calculator shows that total interest will be $328,870. Even by the 120th payment, you will have paid only $55,000 of the $315,000 principal and will have paid nearly $160,000 in interest.

Putting just $200 more per month toward principal, you’d save $80,837 in interest and pay off the mortgage six years and four months earlier.

To pay off this same mortgage in 15 years, however, you would need to put an extra $787 per month from the outset of the mortgage. That’s a substantial additional expense for many homeowners. You would, however, save more than $180,000 in interest over the life of the loan.

Switch to Biweekly Payments

Biweekly payments are half-payments made every two weeks instead of a full payment once a month. Making biweekly payments instead of monthly payments results in one additional payment each year.

Using the example above, making one full, extra mortgage payment each year will reduce the amount of time it takes to pay off your 30-year mortgage, but only by five years.

Look Into Refinancing

Refinancing your loan into one with a lower interest rate and/or a shorter term (such as a 15-year mortgage) can help you pay off your mortgage faster. A shorter term usually comes with a lower interest rate, so you’re saving on interest while also paying your mortgage off sooner than 30 years.

Refinancing to a lower interest rate will reduce your monthly mortgage payment, so if you continue to make the higher payment, you’ll pay your mortgage off faster.

Recommended: Mortgage Questions for Your Lender

The Takeaway

There are a couple ways to pay off a 30-year mortgage in 15 years. Paying off your mortgage early will result in substantial interest savings, but the tradeoff for many borrowers is not having extra money to put toward retirement and other purposes.

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 it cheaper to pay off a 30-year mortgage in 15 years?

The amount of interest you’ll save by paying off your mortgage in 15 years instead of 30 is substantial.

Why shouldn’t you pay off your mortgage early?

Homeowners who haven’t fully funded their retirement accounts, who don’t have an emergency fund, or who have other debt with high interest rates may not want to pay off a mortgage early. Also, those who think they can earn a better return on their money with investments may not want to pay off their mortgage early. (They need to keep in mind that past performance is not necessarily indicative of future returns.)

How do you pay off a 30-year mortgage in half the time?

Paying more toward the principal early in the mortgage can help you cut the amount of time you spend paying on your mortgage in half. The good news is you don’t have to make double payments to cut the amount of time you pay on your mortgage in half. Because each payment will reduce the principal, you will pay less overall.

Are biweekly mortgage payments a good idea?

Biweekly mortgage payments, or half-payments made every two weeks, will add a full mortgage payment every year. Using this method can take a few years off your mortgage.

Photo credit: iStock/everydayplus

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

SOHL-Q324-042

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 mortgage is most popular by far: Manageable payments that ideally allow room for other needs and wants.

But borrowers who can afford the higher monthly payments of 15-year mortgages, and who like the lower rate, may find them compelling.

How Does a 15-Year Mortgage Work?

Borrowers who opt for a 15-year mortgage when choosing a mortgage term will pay off their loan faster and save significantly more in interest over the life of the loan. (Here we are talking about fixed-rate home loans, not variable-rate ones; the latter can be useful in certain situations but are more complicated.) The main trade-off if you choose a 15-year loan is the fact that your monthly payment will be significantly higher than 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 4.6% would result in $115,860 in interest paid. That same loan amount with a 30-year term at 5.8% would translate to about $333,700 in interest, a difference of $217,840.

The basic monthly payment, however, would be $2,310 vs. $1,760 in this example. Use an online mortgage calculator to compare home loans.

Lenders charge lower rates for 15-year mortgages because it costs them less to underwrite 15-year mortgages than 30-year loans. Generally speaking, the longer term a loan, the riskier it is to lenders, which they price into the loan through a higher interest rate.

Here are the main pros and cons of 15-year mortgages.

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 you’re interested in building generational wealth, a 15-year mortgage also is 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.

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 like 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, rev up the kitchen, and generally maintain the value of their home.

What about vacations and buying stuff? Yes and yes.

And some buyers will want to set up a college fund.

Like most things, 30-year home loans have upsides and downsides to consider.

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 have started looking 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 the mortgage early. Every extra principal payment reduces your overall loan balance and reduces the amount of interest that compounds over time as well.

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.

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 are able to choose one or the other, you’ll want to consider 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, or whether any money left over monthly after making the relatively low mortgage payment on a 30-year loan could be put to other uses.

Your income level, career stability, and debt-to-income ratio may largely determine your course.

Recommended: Home Loan Help Center

The Takeaway

The decision on 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.

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 because of the extra risk of longer-term loans.

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