What are the biggest differences between 30-year and 15-year mortgages?
Ranked as the two most popular loan terms on the market, both the 30-year and 15-year mortgage options have a lot to love. According to the Consumer Financial Protection Bureau, just over 80% of buyers chose a 30-year repayment plan, with the 15-year term coming in next comprising 8.9% of buyers.
So besides the difference in duration, what sets these two options apart? The biggest differences come down to rates, your monthly payment and loan size.
With a 15-year mortgage, you’re paying off your balance faster and therefore incurring less interest as the amount that goes towards your equity in the property continues to grow. Rates are also typically lower for 15-year mortgages.
But regardless of lower interest rates and paying less interest over time, monthly payments are usually considerably higher with 15-year mortgages than 30-year mortgages. You’re cutting your payback time in half. Because of this, you end up with a lower lending limit which can quickly shrink your buying options. Typically, when you stretch out your loan term to 30 years, you’re able to borrow a higher amount while still keeping payments affordable.
There are pros and cons to both options, and it really comes down to the amount you need to finance, how expansive you want to keep your options and whether your monthly payment is feasible.
If you’re ready to to learn more about your mortgage options, see what our current rates look like and apply today. If not, keep reading to get additional details on the key differences between a 15-year and 30-year mortgage.
Key benefits for a 30-year mortgage
With a fixed-rate, 30-year mortgages offer stability in regards to your monthly payment. The interest rate charged on the outstanding principal balance remains unchanged for the duration of the loan, ensuring you know exactly what your payment will look like for the next three decades regardless of what’s going on in the economy and the real estate market.
Since these payments are spread out over 30 years, monthly payments are typically lower than options with shorter repayment terms. This loan type tends to allow for buyers to make more expensive purchases. If you have a lot to finance, it can help your affordability factor to stretch out your loan term.
30-year loan terms are often recommended to homebuyers who plan to stay in their property for longer, as the first few years of payments will be spent paying interest. Gradually, you’ll begin making a dent in your loan’s principal balance and begin building equity. And if you’re eager to build equity faster, there’s always the option of paying more than your required minimum each month.
Key benefits for a 15-year mortgage
Just like a 30-year mortgage, 15-year mortgages offer fixed rates and consistency. Your mortgage payment will remain the same for the life of the loan. If you’re able to lock in a fixed rate when rates are competitive, this can be a great way to eliminate potential jumps in your repayment plan.
A 15-year fixed-rate mortgage allows you to pay off your balance faster and therefore incur less interest overall—a savings in the long run—but a significantly higher payment month to month. This type of loan is often recommended to people looking to refinance or quickly build equity.
Depending on how much you need to borrow and how much you can afford to pay each month, a 15-year mortgage can be a great way to save on interest and begin building equity faster. And because of the shorter loan terms, interest rates are often lower. If you can afford your monthly payment with a 15-year term, it can be beneficial to pay your loan off faster, and ultimately pay less in total cost.
Which mortgage types are available as 30-year mortgages?
The most common 30-year mortgage is the 30-year fixed-rate conventional mortgage, but there are several other options that offer a 30-year payback timeframe, including:
Different Types of 30-year mortgages available
FHA: A loan backed bt the Federal Housing Administration, lenders are typically more flexible with their qualifications, and minimum down payment options begin at 3.5%.
VA: Available to military service members (Active Duty, Veterans and their family members), VA loans are guaranteed by the U.S. Department of Veterans Affairs which typically allows lenders to offer more favorable terms.
Jumbo: These loan types are available in both fixed- and adjustable-rate structures, ranging from five to 30 years in terms of the length of the loan, and are used to finance properties that fall outside the conventional conforming loan limits.
Which mortgage types are available as 15-year mortgages?
Similar to its 30-year counterpart, 15-year mortgages are available as conventional fixed-rate loans, as well as FHA 15-year fixed rate and Jumbo 15-year fixed non-conforming mortgages. Whether you go with a 30-year or a 15-year repayment term will come down to how expensive your home purchase price is and how much you can afford to pay towards your mortgage each month.
How can I calculate the difference between a 30-year and a 15-year mortgage?
There’s so much that goes into your total mortgage payment, including:
- Principal interest
- Private mortgage insurance (PMI)
- Property taxes
- HOA fees
You’ll need to consider all of these factors to determine a potential home’s affordability, so it can be helpful to have a tool to do some of the calculations for you. A great place to start is with our Mortgage Calculator. With instant, customized results, you can input home price, your down payment amount and loan term and see what your monthly payment would look like, including a breakdown of costs.
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