15- vs. 30-Year Mortgage: Which Is Best?

By Kealia Reynolds
Photo by Breno Assis

Fifteen and 30-year fixed rate mortgages are structurally similar, with the main difference being simply the amount of time you have to repay the loan. Though a 30-year mortgage is the more popular option among Americans, and is the industry standard in the United States, a 15-year mortgage is actually cheaper on several fronts (even though you pay a more on a monthly basis). Let’s put them head to head: the 15- vs. 30-year mortgage.

Pros and cons of a 15-year mortgage

One of the most obvious advantages of a 15-year mortgage is that you’re set up to pay your house off in half the time it would take with a 30-year mortgage. Since 15-year mortgages present a lower risk to lenders, the interest rate on a 15-year mortgage tends to be lower—this translates to your saving thousands of dollars in interest over your 15-year loan term and paying off your principal faster.

For example, let’s look at a $200,000 loan with a 3.8% interest rate for 30 years and a 3.2% interest rate for 15 years:

  • Borrowing the money at 15 years would cost $52,086.83
  • Borrowing the money at 30 years would cost $135,489.29
Loan amount Loan term Interest rate Cost to borrow Total cost
$200,000 15 years 3.2% $52,087 $252,087
$200,000 30 years 3.8% $135,489 $335,489

Fifteen-year mortgages are thought to be more expensive since they come with higher monthly payments. Because of these higher payments, your debt-to-income ratio will be higher and qualify you for a smaller loan (as opposed to a 30-year mortgage, which qualifies you for a larger loan). Despite the higher monthly payments, you’ll earn equity faster and be debt-free after 15 years. What’s not to love about that?

How to qualify for a 15-year mortgage

To qualify for a 15-year mortgage, you’ll need to provide financial paperwork (including your last two paychecks, your last two federal income tax returns, and your current savings and checking account balances) to prove you can afford the mortgage.

It’s also recommended that you have a credit score of 720 or higher—with a high credit score, you’ll generally qualify for lower interest rates and more affordable monthly payments. Though a down payment of 20% is recommended for a 15-year mortgage, the minimum required down payment is 3%.

Photo by Erol Ahmed

Pros and cons of a 30-year mortgage

A 30-year mortgage can end up costing you more than double a 15-year mortgage. So, why do homebuyers still flock to this option?

A 30-year mortgage is often preferred among homebuyers because of the perceived lower cost due to lower monthly payments. These lower payments allow you to save more money and put cash toward savings and retirement, not to mention, you’ll probably qualify for a higher loan amount when you purchase your home (lenders qualify buyers based on debt as a percentage of income).

Though lower monthly mortgage payments are ideal for first-time home buyers, 30-year mortgages come with a higher interest rate, meaning that you’ll pay more in interest over the lifetime of the loan.

For example, with a $200,000 loan, the interest rate for a 15-year mortgage would be 3.2% while the interest rate for a 30-year mortgage would be 3.8%. As mentioned before, this translates to your borrowing $52,086.83 for a 15-year mortgage and $135,489.29 for a 30-year mortgage. It’ll also take longer to build equity with a 30-year mortgage.

How to qualify for a 30-year mortgage

To qualify for a 30-year mortgage, most mortgage lenders require that you have a credit score of 600 or higher. Note that this isn’t a hard-and-fast rule or requirement for securing a 30-year mortgage, just a recommended industry standard. However, the required down payment for a 30-year mortgage is 3%.

Additionally, even though there isn’t a standardized income requirement, mortgage lenders will measure your income against your current and future debt to ensure you have the financial capacity to pay off your mortgage loan.

Photo by Qusai Akoud

Adjustable-rate mortgages

Adjustable-rate mortgages (ARMs) are another popular mortgage option for home buyers. This is a variable-rate option that offers a low initial interest rate that stays unchanged for a period of time (typically five years). After this period expires, borrowers could pay more or less depending on whether the interest rates rise or drop.

ARMs are perfect for buyers who aren’t looking to own their home for more than seven years. The most popular ARM mortgage term lengths are three-year, five-year, seven-year, and 10-year loans.

Refinancing a 15- or 30-year mortgage

Refinance your mortgage means paying off your existing loan and replace it with a new one. Most homeowners choose to refinance their mortgage to gain lower interest rates, shorten their mortgage terms, or convert from an ARM to a fixed-rate mortgage or vice-versa.

If you want lower monthly payments, you can stretch out a 15-year mortgage by refinancing it into a 30-year mortgage. And though a 30-year mortgage will allow you to make lower monthly payments, refinancing to this option will extend the time it takes you to pay repay your current loan and cause you to pay interest on the mortgage for a longer period.

When you refinance from a 30-year fixed-rate mortgage to a 15-year mortgage, you’ll pay a lower interest rate and save money on interest payments, but you’ll be making higher monthly payments and subsequently have less flexibility with your money, which could be an issue if you have an unexpected expense or income reduction.

15- vs. 30-year mortgage: how to choose

Still not sure which mortgage is best for you? Consider these four questions before choosing between a 15- vs. a 30-year mortgage.

Are you a first-time home buyer?

Typically, first-time homebuyers take out a 30-year mortgage for lower monthly payments, turning a more expensive home into a more affordable one. However, if you can afford higher monthly payments, a 15-year mortgage will save you money in the long run.

What’s your current credit score?

As mentioned previously, most mortgage lenders will require you to have a 600 or higher for a 30-year mortgage or a 720 or higher for a 15-year mortgage. Additionally, a higher credit score will help you qualify for a better interest rate on your home loan. If your score falls below the recommended credit score, talk to your mortgage lender about your options.

How much can you afford to pay each month?

Most mortgage lenders require a down payment of at least 3%. However, your credit history, location, and type of home you’re buying could determine a higher minimum down payment of five percent, 10 percent, 20 percent, or more. Keep in mind that those who can’t put down at least 20% on some mortgages may have to purchase private mortgage insurance (PMI) which can add a couple hundred dollars to your monthly payments.

Consider how much you have in your savings account in the event of a job loss or emergency and use a mortgage calculator to help you estimate how much you could afford with two different mortgage terms.

How long will you live in the home?

If you’re planning on moving within five years of buying your home, a 30-year mortgage might be best because you’ll be paying less each month. However, you’ll have more equity in the home if you choose a 15-year mortgage.

A last piece of advice: meet with a mortgage expert or loan officer—these professionals will study your financial portfolio, discuss your housing goals, and help you calculate which loan (15- vs. 30-year or an ARM) makes the most sense for you.

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