15 vs. 30-Year Mortgage: Find Out What’s Best For You

Difference Between a 15-Year Mortgage and 30-Year Mortgage

In the case of a 15-year fixed mortgage, the borrower can amortize their mortgage at an early date. However, the monthly payments will be higher as compared to the 30-year mortgage. It’s a bit difficult to obtain a 15-year mortgage as it requires a lower DTI and higher income.

Here’s a free spreadsheet template on the amortization schedule:

• 15-Year Mortgage Amortization Schedule
• 30-Year Mortgage Amortization Schedule

Example of 15 vs. 30-Year Mortgage

There’s a notable difference between a 15-year mortgage and a 30-year mortgage. The below example shows the different options on a $300,000 loan with a $50,000 down payment. The interest rate assumed for a 15-year mortgage and a 30-year mortgage is 3.5% and 4.1% respectively.

30-Year Mortgage	15-Year Mortgage
Purchase Price: $300,000	Purchase Price: $300,000
Down Payment: $50,000	Down Payment: $50,000
Loan Amount: $250,000	Loan Amount: $250,000
Interest Rate: 4.1%	Interest Rate: 3.5%
Monthly Payment: $1208 (Principal + Interest)	Monthly Payment: $1787 (Principal + Interest)
Total cost of mortgage: $484,880 including the down payment	Total cost of mortgage: $371,698 including the down payment

As per the above example, a 15-year mortgage could save you more than $100,000 in interest payments.

Pros and Cons of a 15-Year Mortgage

Let’s understand the pros and cons of a 15-year mortgage:

Pros	Cons
Early Homeownership: A 15-year mortgage allows you to become a homeowner in just 15 years. You’ll be debt-free sooner with a tangible asset at your disposal.	Higher Monthly Payments: Interest on a 15-year loan will have a higher monthly payment as it gets amortized quickly.
Save Thousands in Interest Payments: Lenders charge lower mortgage rates for 15 years. This saves thousands of dollars in interest payments as it’s easier to predict repayment over 15 years.	Hard to Qualify: A 15-year mortgage demands a higher monthly income and a lower DTI making it tough to qualify for.
Faster Equity Buildup: A 15-year mortgage allows you to build home equity quickly. You can also use it as a HELOC.

Pros and Cons of a 30-Year Mortgage

Let’s understand the benefits and drawbacks of a 30-year mortgage:

Pros	Cons
Low Monthly Payments: A 30-year mortgage offers lower monthly payments as you have more months to pay off the loan. However, you do pay more interest, but the overall monthly payment is still less than the 15-year mortgage.	High Interest Payments: The interest rate on a 30-year mortgage is higher as compared to the interest rate on a 15-year mortgage. This is because it takes twice the time for the lender’s money to amortize as compared to a 15-year mortgage.
Chance to Buy a Bigger Property: A 30-year mortgage would be a wiser option if you want to buy a bigger house. And since it requires more money, a 30-year mortgage would allow you to smoothly pay off that mortgage.

How to Pay Your 30-Year Mortgage Early?

Here’s how you can pay your 30-year mortgage early:

• Extra Payments: You can make extra monthly payments if you have surplus cash. However, you must ensure that your mortgage agreement is exempt from the prepayment penalty.
• Bi-Weekly Payments: The biweekly payment option allows you to make one payment every two weeks, which adds up to 26 yearly payments. This way, you’ll pay 13 installments over the year and pay off your mortgage early.
• Mortgage Refinance: It’s better to refinance your mortgage only when you’re financially stronger. If you have a big promotion coming up or an inheritance, then you can refinance your mortgage to pay it off early.

Alternatives to 15 and 30-Year Mortgages

Various alternatives are available for 15- and 30-year mortgages.

• 10-Year Mortgage: This type of mortgage gets amortized over 10 years. However, most people don’t opt for it.
• 20-Year Mortgage: It can be useful for those who need more time than a 15-year loan but less than a 30-year loan.
• 40-Year Mortgage: This loan lasts for 40 years and is not as popular as the 15- or 30-year loan.
• Interest-only Mortgage: Here the borrower pays only interest for initial years. the principal is paid later, usually in lump sum. Most lenders don’t offer this type of mortgage.

15 vs. 30-Year Mortgage, What’s Better?

It’s advisable to do some calculations before going ahead with either of the mortgage terms. A 15-year loan is a better option to pay off the mortgage faster. But you will have to spend more on monthly payments.

Conversely, a 30-year loan offers lower monthly payments. This allows you to buy a larger home or save cash for other financial objectives.

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