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 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 — and let’s just talk about fixed-rate, not variable-rate loans, which can be useful in certain situations but are more complicated — will pay off their loan faster and save significantly more in interest over the life of the loan. The main trade-off 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.
| Pros | Cons |
|---|---|
|
• Interest cost savings • Faster loan payoff • Lower interest rate • Equity built at a faster rate |
• Much higher monthly payments • Less cash available for other opportunities • Smaller range of homes in the budget, thanks to high 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 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 a typical U.S. family, expect a 15-year mortgage to restrict your budget.
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 like preparing for retirement.
And shoring up emergency savings. Paying off higher-interest debt is always 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.
| Pros | Cons |
|---|---|
|
• Lower monthly payments • Extra monthly cash to dedicate to other opportunities • Making extra payments or refinancing will shorten term • Greater mortgage interest deduction if you itemize than a shorter-term loan allows |
• 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.
Between rising home prices and interest rates, 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. Some homeowners use this strategy when itemized deductions on a primary and second home total more than the standard deduction.
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.
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.
SoFi offers fixed-rate mortgages with a variety of terms and competitive rates. Check out all the advantages of SoFi Mortgages.
FAQ
Is a 30-year mortgage better than a 15-year mortgage?
It’s a matter of personal choice and affordability.
Is it better to pay off my mortgage for a long period?
You’ll pay a lot more in total interest than you would with a shorter-term loan, but payments will be more affordable.
Can I pay off my 30-year mortgage in 15 years?
Yes, assuming that your mortgage doesn’t have a prepayment penalty, there’s nothing stopping you from paying off the balance ahead of schedule.
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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