Among the biggest decisions you’ll make when taking out a mortgage is your loan’s term—or how long you have to pay it back.
You have two main options when it comes to loan terms. The 30-year term, which gives you three full decades to pay off your mortgage balance, is by far the most popular—the choice of more than two in three borrowers, according to one recent analysis.
But next in line is the 15-year term, which about nearly 10% of borrowers use. These have shorter payoff timelines but come with a few advantages–including a lower interest rate—that can save your thousands of dollars over the life of the loan.
The right decision for you will depend on your income, home savings and goals.
What’s the difference between a 15-year and 30-year mortgage?
The primary difference between a 15-year and 30-year mortgage is how long you have to pay off your balance. With a 15-year loan, your mortgage balance is amortized over 180 months. For a 30-year loan it’s 360 months. With both loans, the amount of your monthly payment stays the same, while the share of that payment applied to interest gradually declines, and the share applied to principal gradually increases, hence the jargony term “amortized.”
Because of this difference in timelines, your required monthly payments will differ depending on which term you chose—even at the same loan amount. Fifteen-year loans will come with notably higher monthly payments than 30-year ones.
15-year mortgage rates vs. 30-year mortgage rates
However, mortgage rates vary by term length, too. Broadly, 15-year rates are usually quite a bit lower than the rates offered on 30-year mortgages. In 2022, the average rate on 30-year mortgages ranged from 3.22% to 7.08%, according to Freddie Mac. Rates on 15-year mortgages, on the other hand, vacillated between 2.43% and 6.36%.
Lower rates, paid for less time mean your total interest costs will be significantly lower on a 15-year loan than on a 30-year. To see the difference this makes in action, consider recent average rates, according to Freddie Mac, and apply them to a $400,000 mortgage balance—more or less in line with the national average for new loans.
| Loan term | Interest rate | Monthly payment | Total interest |
|---|---|---|---|
| 15-year | 6.03% | $3,381 | $208,744 |
| 30-year | 6.67% | $2,573 | $526,336 |
Rates current as of June 15, 2023.
Freddie Mac
Source: Freddie Mac. Rates current as of June 15, 2023.
As you can see, the monthly payment on a 15-year mortgage is about $800 more a month. Over the long haul, however, the lower interest rate would save you over $317,000.
Pros and cons of a 15-year mortgage
A 15-year mortgage has some perks. Primarily, your interest rate is lower, and you can save thousands over the course of your loan.
Beyond this, you also start to build up equity sooner with a 15-year loan. This is because mortgage loans are amortized—with the bulk of your early mortgage payments going toward interest and only a small amount paying down the principal. With a 15-year loan, you start eating into that principal balance faster.
Building equity faster can allow you to cancel private mortgage insurance sooner. PMI is an extra monthly cost you’ll pay if your down payment is under 20%, which protects the lender, not you. Once you get to 20% equity, though, you can cancel PMI and reduce your monthly payment.
On the downside, 15-year loans come with higher monthly payments. This could put a strain on your budget and be risky if you lose your job or fall on hard times.
Additionally, 15-year mortgages can be harder to qualify for—mainly because of that higher payment. Mortgage lenders will need to see that you have the income to comfortably cover that payment for the foreseeable future.
15-year mortgage pros & cons
| Pros | Cons |
|---|---|
| Lower interest rates | Higher monthly payments |
| Lower long-term interest costs | Harder to qualify for |
| Allows you to build equity and cancel PMI faster | Risky for your budget |
Pros and cons of a 30-year mortgage
The 30-year mortgage is the most popular loan in the nation for a reason. In particular, it minimizes your monthly payment. This can make these loans easier to qualify for and help you afford to buy a home sooner than you could with a 15-year loan.
A 30-year loan isn’t as risky as a 15-year, since your monthly obligation is much lower. If you were to lose income or have unexpected expenses crop up, your budget would have more wiggle room to get you by. For this reason, Melissa Cohn, a regional leader at William Raveis Mortgage, says 30-year loans are smart “If you’re unsure of your future income.”
Conversely, 30-year loans aren’t great if you want to minimize your interest costs. As the above table shows, not only are rates higher on 30-year loans, but those rates equate to much bigger interest costs over the course of 30 years.
It also takes longer to build equity with a 30-year loan. That means it’s longer until you can cancel PMI.
30-year mortgage pros & cons
| Pros | Cons |
|---|---|
| Easier to qualify for | Higher interest rates |
| Lower monthly payments | Larger long-term interest costs |
| Less risk to your budget | Takes longer to build equity and cancel PMI |
How to decide
There are a few factors you should consider when deciding between a 15- and a 30-year mortgage. First, how reliable is your income, and how flexible is your monthly budget? If you’re confident your income will be consistent for the next decade and beyond—and you have plenty in your emergency fund, a 15-year mortgage could be smart. However, if you’re not sure your job is safe or you need extra wiggle room, a 30-year mortgage is probably safest.
“A 15-year mortgage would be ill-advised if a customer is tight on their budget,” says Chuck Meier, mortgage director at Sunrise Banks.
The price of the home is a factor, too, and your goals as a homeowner also play a role.
“If you plan on staying in your home for a long time and want to live mortgage-free, the 15-year fixed mortgage gets you there in half the time,” Cohn says. “This is a good option for someone who plans on retiring in their home and wants to minimize their monthly obligations when they retire.”
Finally, consider the long-term costs. If you can comfortably afford the higher payment, choosing a 15-year loan can reduce your interest costs, reduce the amount of PMI you pay and help you maximize your tax deductions. So if you can afford the payment without straining your budget, it’s typically best for your finances in the long run.
Is it better to get a 15-year mortgage or pay extra on a 30-year?
Another option is to get a 30-year mortgage but make extra payments. Scott Lindner, national sales director at TD Bank, calls this the “have your cake and eat it, too” approach. This would save you on interest, allow you to build equity and pay down your balance faster while still retaining the safety that comes with a 30-year mortgage.
Continuing the example above, you could take out that $400,000 mortgage with a 30-year term at the current rate, but pay it as though it were a 15-year loan. If you stuck with it, you would pay off your loan in just over 16 years and pay about $254,000 in interest. While you would still come out ahead with the 15-year loan in this scenario, it wouldn’t be by much and you would maintain flexibility.
“You can make the 15-year payment on a monthly basis, receiving the benefits of a 15-year mortgage,” Lindner says. “If the higher payment becomes a challenge, you can revert to the lower 30-year mortgage payment.”
More on mortgages
- How to Get a Mortgage
- Current Mortgage Rates
- The Best Mortgage Lenders
- What Is a Jumbo Mortgage, and How Do You Get the Best Rates?
- What Is an Adjustable Rate Mortgage, and How Do You Get the Best Rates?
Meet the contributor
Aly J. Yale
Aly J. Yale is a contributor to Buy Side from WSJ and a personal finance journalist with work featured in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.
