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15 vs 30 Year Mortgage – Which One Is Better For You

Are you in a quandary whether to get 15-year or a 30-year mortgage?  Many people do not make an effort to try and understand how their choice would impact their financial situation.  In this article, we provide the advantages and disadvantages of both to help you decide what is best for you.

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

Table Of Content

Are you in a quandary whether to get 15-year or a 30-year mortgage?  Many people do not make an effort to try and understand how their choice would impact their financial situation.  In this article, we provide the advantages and disadvantages of both to help you decide what is best for you.

Buying a house could be pretty exciting.  You drive all over the city, checking different homes in different locations, appreciating their fine features and perhaps picturing yourself living in one of them.  This part of home buying can be a lot of fun but what about searching for a mortgage?  It doesn’t sound too enchanting but it’s something you have to go through.

Chart: Total U.S. Mortgage Originations 2000 – 2021 (in billion USD)

Shop Around, Understand The Market

You might be familiar with the saying “No pain, no gain” – this applies as well to mortgage hunting.  You must endure the whole process to make sure that you can get the best possible deal because eventually, it will be for your long-term benefit. During the shop-around, you will surely come face-to-face with so many different choices for every aspect.  You have to pick one lender from among so many, decide how much down payment you want to put in, choose whether you want to buy points or not, etc.  However, probably nothing is more important than selecting the mortgage term for your loan.

Technically, the mortgage term sets the number of years the lender will allow you to pay off your loan if you don’t make extra or early payments.  Nowadays, most lenders will give borrowers a menu of short, intermediate or long mortgage terms.

However, the most common is the standard 15-year and 30-year mortgages.

This is what often happens:  First-time buyers (or those who want to refinance) would initially pick a 15-year mortgage because of the interest rate. Of course, being able to fully pay for your house in 15 years sounds like a great idea.

But, as soon as they compute for the monthly payment and see that it’s a lot higher, they back off.  “Maybe this is not what we really want to do.”, many would often say.

15 Vs 30 Year Mortgage: How They Work?

Since basically, the loan will be spread out throughout the entire loan period, the term would affect how much the borrower should pay every month.  Throw in the interest rate and you will see the big difference between a 15-year and a 30-year mortgage.  This is how they generally affect your loan:  with a 15-year mortgage, you’ll pay more every month but pay less interest overall.

For the 30-year mortgage, you’ll have to pay more interest.  This will cause you to pay more for your house because of the additional interest although you would be paying a smaller monthly amortization.

In choosing your mortgage term, you should always consider how it will fit your budget and how it will impact the overall costs.

Let’s look at some figures so you can have a better picture.  Say you want to borrow $150,000 to buy a new home and your options are a 15-year mortgage at 4% or a 30-year mortgage at 4.5%.  If you choose the 15-year plan, you will pay about $1,110 a month (exclusive of insurance and taxes).  Eventually, you would end up with a total interest payment of $50,000 over the entire life of the loan.

Using the same scenario but using the 30-year mortgage, you’ll be paying just $760 a month.  It may look a lot cheaper but in reality, your interest would be 250% bigger.  On a monthly basis, that would be an extra of about $350, money that you could spend to pay other debts, build your emergency stash or contribute for your retirement.  The lower monthly payment would appear to be an advantage but your home would ultimately come with a higher cost.

Is it Cheaper to Pay Off a 30-Year Mortgage in 15 Years?

Yes, if you overpay on your mortgage, you will be paying down the principal, which will reduce the interest charges. Your monthly mortgage payments are calculated for the entire 30 year term based on paying the interest and a portion of the principal. So, if you repay the mortgage in 15 years, there is massive potential for savings.

For example, if you have a $200,000 30 year mortgage at 5%, the total amount you’ll pay would be $386,815. By paying off the mortgage in 15 years, you could save approximately $90k in interest charges.

The rate on a fixed 15-year fixed-rate mortgage has been below 7% from 2005 to 2021, according to Frediemac. The highest mortgage rate recorded in this period was 6.07% in 2006, and this period was followed by a gradual decline until 2012 when the interest rates fell to 2.93%. The lowest rate on a fixed 15-year mortgage was reported in the first quarter of 2021 at 2.28%.

Chart: Rates on 15-Year Fixed Rate Mortgage in the U.S. 2005-2021

According to data obtained from Freddie Mac, the interest rate on a 30-year conventional mortgage has been on a gradual decline. In 1975, the rate of the 30-year conventional mortgage was 13.74%, and it has declined to 3.08% in 2021. Mortgage lenders lower mortgage rates as a way of stimulating growth in the housing market.

Chart: Rates on 30-Year Conventional Mortgage in the U.S. 1975-2021

Why Would You Go For a 30-Year Fixed-Rate?

  It can minimize your monthly payment

The primary reason for picking a 30-year mortgage is that you can buy a home and make a lower monthly payment than you would if you have taken a 15-year mortgage.

It’s like this:  using the current average interest rates, for a $200,000 15-year mortgage, you would be paying in the neighborhood of $1,460 per month.  Comparatively, you will just pay approximately $1,043 for the same principal on a 30-year mortgage. You can always calculate the difference by 15 years vs 30-year mortgage calculator.

  It’s snug and calculable

A 30-year mortgage is quite popular because it is snug, safe, and very predictable for a home buyer.  The 30-year mortgage allows buyers to have a lower monthly payment and therefore does not eat up too much of the family budget.

So, should some unexpected crisis happen such as a job loss, medical emergencies, natural disasters and other events that could adversely affect your finances, it won’t automatically put your home mortgage at a terrible risk.

  It can boost your homebuying budget

Majority of lenders use your debt as a percentage of your income (or debt-to-income ratio) to evaluate your loan application.  Most of them will set your principal using this ratio.  Your monthly mortgage payment should not exceed 28% of your gross (pre-tax) monthly income.

So, if we assume that you’re earning $5,000 a month, you can afford to pay a maximum of $1,400 mortgage payment.  This would include payment for the principal, interest, taxes, and insurance.  With this monthly figure, you would be able to allocate more for the house if you use a longer-dated mortgage such as a 30-year term.

  You may be able to increase your loanable amount

As we said before, your debt-to-income ratio is one of the major criteria that lenders use to evaluate your loan proposal.  How much they will lend you will largely depend on this figure.  So, it is important to see how much you are paying in debt vis-à-vis how much income you are bringing in.

Since you pay a smaller monthly amount for a 30-year mortgage, you have a lot more latitude and can probably afford a bigger mortgage.  You could then buy a much larger house, a nicer home, or live in a more affluent neighborhood.

Why Would You Pick a 15-Year Mortgage?

Pay off your mortgage a lot earlier

We’ve all been there – the state of wanting to get out of debt. If you are the kind who do not want to be paying off any debt for a long time, this is for you.

After all, a home mortgage payment would probably constitute the biggest chunk of your monthly expenses.  More so if you are nearing retirement or you have a strong inkling that you will lose a stable income stream in less than 30 years.

Save on your interest payment

Here’s the deal:  you may have to make a bigger monthly payment in a 15-year mortgage but you will save a considerable amount in interest consequently.

How much?  Well, let’s illustrate using some figures.

Example: The Difference Between 15 to 30 Year Mortgage

If you purchase a $200,000 home with a 30-year mortgage on the current average interest rate of 4.75%, you will have to pay a total of $375,588.  This is the total principal and interest by the time the 30 years are over.  On the other end of the scale, if you take a 15-year mortgage in the current average interest rate of 3.82%, it will just cost you $263,052.

 30-year mortgage15-year mortgage
Total Cost$375,588$263,052

In other words, a 15-year mortgage will ultimately save you $112,536 in interest payments—serious money, which might add up to a very good reason to tighten your belt and give it a try. One thing to consider is your job situation. If you have a stable career and don’t expect your income to drop significantly at any point, then a 15-year mortgage may be the right call. But what if you were to unexpectedly lose your job and couldn’t make your mortgage payments? You wouldn’t have enough income to qualify for a refinance. This situation would spell serious financial trouble.

Just take a look at the overall difference between the two: a whopping $112,536 in interest.

This is some serious amount that you could have used for other important things.  If this argument does not make you think and seriously consider giving it a try, I don’t know what will.

Interest Rate: Things To Consider

If you have a stable job right now and you don’t foresee any adverse changes in your income happening at any point in the near future, a 15-year mortgage may be the right choice.  However, if you were to unexpectedly lose your job and defaults on your mortgage?  You might be able to qualify for a refinancing.  This situation could put you in a very critical financial trouble.

You should also consider that your income today should also go to other important things and not solely on the home.  After all, owning your own house is just part of your overall financial goals and not the only goal.

Yes, paying off your mortgage faster could be a good idea but you need to balance things.  If channeling most of your monthly income to pay your mortgage means sacrificing your child’s college fund or your retirement fund, then you might have to reconsider.

Is 30 Year Mortgage More Flexible Than 15 Year?

A 15-year mortgage’s greatest advantage is that it could let you pay off your home early.  A 30-year mortgage’s most compelling selling point is its flexibility. The conditions of the mortgage allow you to choose some options:  you can pay off your mortgage earlier than the 30-year period or you can opt to invest.  Since you are paying a lower monthly amortization, it means you would have free funds.  In times of financial hardships, it would be relatively easier to meet your obligations because you might have some savings or just because the monthly amount is not too burdensome for you.

You should also look at your spending and saving habits.  If you’re the type who would spend all rather than scrimp to save a few bucks, a 15-year mortgage can sometimes be a better option.  You might be allocating more of your monthly income to the mortgage payment but at least, you are investing them in a tangible asset that increases in value rather than probably in an asset that fully depreciates after 3 years.

However, as we previously mentioned, if a 15-year mortgage would exhaust your monthly income and cause you to set aside other financial goals, it’s better for you to take a 30-year mortgage.  A home is a good investment but it is not something that you can turn to cash immediately in case of an emergency.  It also won’t necessarily provide an income stream in your senior years so paying it off early is not too high a priority if it will push all other important priorities to the back of the line.

But let’s say you have the cash to pay for a higher mortgage without scratching off your other financial needs, is it always wise to go for a 15-year mortgage?  Well, not necessarily.  Here’s a tip:  if you have the discipline and a little knack for investing, you can get a 30-year mortgage and use your extra funds to invest, make it grow and perhaps, pay off the loan much earlier.

Try to Make Extra Payments

If the issue about a 15-year mortgage’s higher monthly payment is a cause for concern, don’t despair.  There are other options you can take that can somehow even up things.

One technique is to take out a 30-year mortgage but make monthly payments as you would to a 15-year loan.  Yes, you’ll be paying a higher interest rate but in the long run, you’ll still save if you pay off the loan early.  And when you have a month when finances are tight or some urgent expenses come up, you can always revert to paying just the regular monthly amount and you’ll still be good.

A word of caution:  Make sure that your loan agreement does not contain any prepayment penalties and see to it that the early payment applies to the principal, not to the interest. Sit down with your financial advisor and discuss the best plan for your situation.

What Happens If You Make 1 Extra Mortgage Payment a Year?

By making one extra mortgage payment a year, you could significantly reduce the term of your mortgage. If you have a 30 year mortgage, you will need 360 monthly payments to repay the debt. If you increase your repayments and make 13 payments a year, you will repay your loan approximately three to five years early.

This means that you not only gain some financial freedom early, but you could save tens of thousands of dollars in interest charges.

What Happens If I Pay an Extra $200 a Month on My Mortgage?

Overpaying an extra $200 a month on your mortgage could reduce the term of your mortgage and decrease the overall interest charges.

For example, if your monthly mortgage payment is $1000 per month, by overpaying $200 a month, you’ll be making an extra payment every five months. This means that in one year, instead of paying $12,000 off your mortgage, you’ll actually pay $14,400. This may not seem like much, but it is the equivalent of paying 20% more.

If your monthly mortgage payment is lower, the impact will be even more dramatic.

How to Pay Off Your Mortgage Faster?

You may believe that you will always be paying off your house, whether you have a 30-year or 15-year mortgage. However, you can shorten the time it takes to pay off your mortgage by employing a variety of strategies, many of which do not necessitate the expenditure of significant additional funds.

  • Increase the Principal – We all get unexpected money from time to time throughout the year, don't we? You win the lottery, you get a bonus at work, a family member gives you money for your birthday, and you spend it on things you don't really need. If you want to pay off your mortgage as quickly as possible, that money should go toward your mortgage right away. You won't have to worry about finding extra money if you do this, and you'll be able to pay off your loan faster as well.
  • Boost Your Payments – The next step is to increase your monthly payment. You want to divide your monthly principal and interest by 12 and then apply that amount to your payment each month. It won't make a big difference in your monthly payment, but it will give you a full extra payment every year.
  • Provide Some Motivation to Yourself – If you set a specific date for when you expect to have your mortgage paid off, you'll have a goal to strive for, which will definitely motivate you to work a little harder at it. You can also calculate how much you need to pay each month to make it happen.
  • You should round up your payments – Depending on your financial situation, you may be able to round up your mortgage payments to the nearest $100. Pay $1,500 rather than $1,450, or $1,200 rather than $1,125. This strategy will not break the bank, but it will help you own your home faster.
  • Save more – A budget is at the heart of any savings strategy. Budgeting allows you to prioritize your spending and strike a balance between spending and saving over the course of a year. Create a budget that includes funds for not only your day-to-day expenses, but also for socializing, buying new clothes, and other non-essentials. Remember that saving for a house is a long-term goal, so you'll need some money along the way to enjoy life a little more. Set up an automatic transfer into a separate savings account once you've determined how much money you have available to save. The funds should be kept separate from your emergency fund or general savings so that you are not tempted to use them.


For many people their mortgage is their largest debt, so it can be a serious goal to pay off your mortgage as quickly as possible.

However, since your mortgage is likely to be set at a fairly low interest rate, it is not wise to prioritize paying off your mortgage if you’re carrying credit card debt or loans. These unsecured debts usually have a far higher interest rate, so concentrate on paying off these before you switch to paying down your mortgage.

Mortgage terms can vary from 10 years up to 30 years. The most common mortgage deals are 15 year or 30 year. It is quite normal for the average person to take out a 30 year mortgage and make the basic monthly payments for the entire term. However, other people will take the shortest possible term and aim to have the mortgage paid off as quickly as possible.

Ideally, you should aim to have your mortgage paid off approximately five years before you plan on retiring. This will help you to minimize your outgoings and even make any adjustments to your retirement plan before you actually need to retire.

If this is not possible, it is a good idea to have your house paid off at retirement. When you retire, your income is likely to drop and you’ll need to adjust to living on a lower income. So, being burdened with continuing to pay your monthly mortgage payment may put you under undue financial strain.

Generally speaking, it is a better idea to overpay your mortgage. This will allow you to budget and decide your optimal mortgage overpayment. However, you are not tied into making a larger repayment each and every month.

However, if you are able to negotiate a better rate with a shorter term that saves you money each month and will pay off your mortgage sooner, this is a very attractive option.

If you want to overpay on your mortgage, it may be tempting to pay the extra monthly, but this may not be the best idea. While you will immediately start attracting less interest, it doesn’t really give you time to double check that you can afford the extra money.

For example, if you overpay $500 on your monthly mortgage payment and then something major happens, such as your furnace needing replacing, you may have to go into debt to cover this work.

For this reason, many people prefer to put the extra money into a separate savings account and then pay the extra on the mortgage once a year.

While your monthly mortgage payment will be cheaper with a 30 year mortgage, you will pay more in interest over the entire term. Even if you can secure a slightly lower rate with your 30 year deal, you will be paying interest for the full 30 years.

Overpaying an extra $200 a month on your mortgage could reduce the term of your mortgage and decrease the overall interest charges.

For example, if your monthly mortgage payment is $1000 per month, by overpaying $200 a month, you’ll be making an extra payment every five months. This means that in one year, instead of paying $12,000 off your mortgage, you’ll actually pay $14,400. This may not seem like much, but it is the equivalent of paying 20% more.

If your monthly mortgage payment is lower, the impact will be even more dramatic.

If you have disposable income that you do not need to clear any unsecured debts, it is certainly a good idea to pay the extra towards the principal on your mortgage. This will reduce the term of your mortgage, allowing you to clear your mortgage sooner and pay less interest overall.