15-year vs. 30-year mortgage
Choosing a mortgage length, also known as a “term,” is an important financial decision because your mortgage payment is typically your budget’s most expensive item. While a 30-year term may be the most popular mortgage length in the United States for budgetary reasons, a 15-year term enables you to pay off your mortgage in half the time and with less interest. Consulting with a banking professional or financial advisor can help you make a choice that’s personalized to your budget and financial goals.
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Is it better to have a 30-year mortgage or a 15-year mortgage?
Deciding between a 30-year or 15-year length often depends on your current budget and long-term financial goals. Mortgage guarantor Freddie Mac reports that close to 90% of homeowners opt for a 30-year fixed mortgage. The reason behind the popularity of 30-year mortgages is simple: they typically offer the smallest monthly payment (40-year mortgage loans are rare and aren’t backed by traditional lenders). However, a 15-year mortgage enables you to pay less interest, build equity faster, and typically offers a lower rate compared to a 30-year mortgage.
Check out the advantages and disadvantages of both terms:
30-year mortgage
| Pros | Cons |
|---|---|
| ProsAffordable monthly payments: A 30-year mortgage loan offers a smaller payment than a 15-year loan | ConsHigher rate: The longer the term, the higher the rate; lenders typically charge higher rates for a 30-year loan than a 15-year loan |
| ProsEasier eligibility: A smaller payment means you may have a better chance to qualify for a 30-year loan compared to a 15-year loan; a lower payment can also help you qualify for a more expensive home | ConsMore interest: Per Debt.org, borrowers pay approximately 60% more interest on 30-year mortgages than 15-year mortgages |
| ProsMore flexibility: You can pay off a 30-year mortgage loan sooner by making extra payments toward the principal while still being able to fall back on your 30-year fixed payment if necessary | ConsHome equity builds more slowly: You earn equity from your property at a slower pace with a 30-year loan compared to a 15-year loan |
15-year mortgage
| Pros | Cons |
|---|---|
| ProsLower rate: Lenders typically offer a better rate for a 15-year mortgage vs 30 | ConsBigger monthly payments: A 15-year mortgage will have a larger monthly payment than a 30-year mortgage. |
| ProsLess interest: Assuming both loans are carried to term, you pay less interest on a 15-year mortgage compared to a 30-year mortgage | ConsLess flexibility: On a 30-year loan, you can always make extra payments toward the principal or fall back on the lower payment, if necessary |
| ProsHome equity builds more rapidly: Larger payments, compared to a 30-loan, help you pay down your mortgage balance more quickly | ConsQualifying is more difficult: Your debt-to-income ratio may not be low enough for a 15-year mortgage approval |
When do you choose your mortgage length?
Once you determine how much you can afford for a home and make an offer on a house, your mortgage lender or bank will help you apply for a mortgage. Your income, debts, assets, credit score, and other information may help determine the type of mortgage loan you’re eligible for. Your mortgage professional will present the options and disclose the rate and fees.
Speak with a trusted financial advisor if you’re unsure about which length is right for you before signing any loan documents. Once you’ve selected the best option, your lender will begin the mortgage underwriting process in order to finalize your loan.
Whether you opt for a 30-year or 15-year mortgage, understand that your monthly mortgage payment may include more than just your loan’s principal and interest. If your lender sets up an account for escrow, then the cost of homeowners insurance and private mortgage insurance (which applies if the down payment for your home is less than 20% of the purchase price) may be included in your mortgage payment.
Learn details about the home-closing process and what to expect when it comes to closing costs.
Pro tip:
Progressive helps simplify the home loan process. Apply for a mortgage loan and we’ll help you find the right type of financing for your situation.
Is it better to get a 15-year mortgage or pay extra on a 30-year mortgage?
The interest rate on a 15-year mortgage is typically lower than a 30-year mortgage, so, if you’re able to comfortably pay a mortgage payment on a 15-year loan, it may be a better option. However, if the payment on a 15-year mortgage is tight for your budget, you may desire a 30-year loan with a lower payment.
Can you get a 30-year mortgage and then pay if off in 15 years?
Yes. Lenders often don’t charge prepayment penalties on mortgage loans. Regardless of whether you select a 30-year fixed mortgage or 15-year fixed mortgage, you’ll have the flexibility of being able to rely on a set monthly payment, make extra payments if you choose, or pay off your loan early at any time.
Can you get a 30-year mortgage and then refinance to a 15-year mortgage?
Some government-backed loans require you to pay on your mortgage for a year before you can refinance. Some lenders may also have a waiting period before you can refinance or charge a pre-payment penalty if you refinance soon after taking out the loan. If you’re eligible to refinance, make certain your new loan’s closing costs don’t negate the savings you may earn from refinancing.
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