Homebuyers choose the number of years they’d like their mortgage to last. The 30-year fixed-rate mortgage is by far the most popular, followed by the 15-year fixed-rate mortgage, but terms of 10, 20, 25, and even 40 years are available. The term that will work best for each borrower largely depends on the monthly mortgage payment they can handle and how long they plan to keep the property.
Table of Contents
Key Points
• A mortgage term is the number of years it will take to pay off a home loan.
• Borrowers most often choose a 30-year or 15-year fixed-rate mortgage.
• Shorter mortgage terms generally mean higher monthly payments but less total interest paid and a lower interest rate.
• Adjustable-rate mortgages (ARMs) can start with lower rates but involve the risk of payment increases when the rate adjusts.
• Choosing the best mortgage term depends on your budget, how long you plan to stay in the home, and your overall financial goals.
What Is a Mortgage Term?
The term is the number of years it will take to pay off a home loan if the minimum payment is made each month. Knowing how long you plan to stay in your home can affect the type of home loan that fits your situation when you shop for a mortgage — not only short or long term, but also fixed or adjustable interest rate.
Of course, every borrower’s situation is unique. But according to the National Association of Realtors®, in 2024, people who were selling homes had typically lived in the property for a decade. So it might be reasonable to expect that you’ll spend 10 years in the home unless you already know otherwise.
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How Mortgage Terms Work
For fixed-rate home loans, payments consist of principal and interest, with one consistent interest rate for the life of the loan. With mortgage amortization, the amount going toward the principal starts out small and grows each month, while the amount going toward interest declines each month.
A shorter term, conventional loan generally translates to higher monthly payments but less total interest paid, and a longer term, vice versa. A shorter-term loan also will have a lower interest rate. A mortgage calculator tool can show you the total amount of interest paid, which in a fixed-rate loan is predictable.
Most adjustable-rate mortgages (ARMs) also have a 30-year term. You can’t know in advance how much total interest you will pay because the interest rate changes.
How Long Can a Mortgage Term Be?
A few lenders out there offer 40-year mortgages. Qualifying is more difficult, and the rates are the highest among fixed-rate loans, while 40-year loans with adjustable rates can be unpredictable. The long term means a borrower will make the lowest possible monthly payments but pay more over the life of the loan than any other.
💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
Fixed-Rate Mortgages vs. Adjustable-Rate Mortgages
When you’re first choosing mortgage terms or looking at different types of mortgages, start with one of the basic quesitons: Will the rate change over time or not?
A fixed-rate mortgage is exactly what it sounds like. You lock in an interest rate for the entire term. If market rates rise, yours will not.
An adjustable-rate mortgage is much more complicated. An ARM usually will have a lower initial rate than a comparable fixed-rate mortgage, and a borrower may be able to save significant cash over the first years of the loan.
But a rate adjustment can bring a spike in mortgage payments that could be hard or impossible to bear. With the most common variable-rate loan, the 5/1 ARM, the rate stays the same for the first five years, then changes once a year.
An interest-only ARM has an upside and downside. You’ll pay only the interest for a specified number of years, when payments will be small, but you will not be paying anything toward your mortgage loan balance.
An ARM may suit those who are confident that they can afford increases in monthly payments, even to the maximum amount, or those who plan to sell their home within a short period of time.
ARM seekers may want to prequalify for more than one loan and compare loan estimates. It’s a good idea to know the answers to these questions:
• How high can the interest rates and my payment go?
• How high can my interest rate go?
• How long are my initial payments guaranteed?
• How often do the rate and payment adjust?
• What index is used and where is it published?
• Will I be able to convert the ARM to a fixed-rate mortgage in the future, and are there any fees to do so?
• Can I afford the highest payment possible if I can’t sell the home, or refinance, before the increase?
Comparing 15-Year and 30-Year Mortgages
Clearly, paying off a mortgage in 15 years rather than 30 sounds great. You’ll get a lower rate, pay much less total interest, and be done with house payments in half the time. The catch? Higher monthly payments. Here’s an example of how a 30- and 15-year fixed-rate mortgage might shake out, not including property taxes and insurance and any homeowners association (HOA) fees.
30-Year vs. 15-Year Fixed-Rate Mortgage
| Type | Loan Specs | Rate | Payments | Total Interest Paid |
|---|---|---|---|---|
| 30-year | Appraised value: $375,000 Down payment: $75,000 Loan size: $300,000 | 4% | Mortgage payment: $1,432 | $215,607 |
| 15-year | Appraised value: $375,000 Down payment: $75,000 Loan size: $300,000 | 3.2% | Mortgage payment: $2,101 | $78,130 |
There’s a reason that the 30-year fixed-rate mortgage reigns supreme: manageable payments that ideally leave enough money for emergencies and retirement savings.
Borrowers making lower payments can always pay more toward the principal if they want to pay off the mortgage early.
Then again, borrowers with stable finances who can afford the higher payments of a 15-year home loan may find it quite appealing.
Recommended: Adjustable-Rate Mortgage (ARM) vs. Fixed-Rate Mortgage
The Takeaway
How to pick a mortgage term? Look at your budget, think about how long you plan to stay in the home, and weigh your financial goals and priorities. Consider getting prequalified so you can see what your options are.
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FAQ
What is the 28% mortgage rule?
The 28% rule is a guideline commonly used by lenders that states that no more than 28% of a homebuyer’s gross income should go to cover their housing costs. In this equation, housing costs equals the homeowner’s mortgage payment, property taxes, and homeowners insurance.
Which mortgage term should I choose?
The mortgage term that’s best for you is a very individual decision. Use a mortgage calculator to see which monthly payment amount feels like the best fit in your current budget. Choose a term that yields a monthly payment amount that allows you to maintain an emergency fund and pay down any other higher-interest debt you may be facing. When in doubt, aim for the term that yields a payment within 28% of your gross monthly income when you factor in property taxes and home insurance.
Is an adjustable-rate mortgage a good idea right now?
ARMs tend to have a lower initial rate than fixed-rate loans. An ARM might be a good idea for you if you plan to sell your home in a fairly short period of time, such as five to seven years, before the rate begins to adjust. ARMs are often more popular when interest rates are forecast to decline in the future, or when home prices and interest rates are fairly high. Just be sure that you understand when the adjustable rate will start to adjust and that you know what the maximum payment might be according to the loan agreement. You’ll want to make sure you have a plan to make that larger payment if necessary.
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