15-Year vs. 30-Year Fixed-Rate Mortgage: Which is Better for You?
When future homeowners apply for a loan, they look for affordability, flexibility, and consistency.
This is why many people look to use a fixed-rate mortgage. It is the most common type of home loan because monthly payments, interest, and principal remain the same throughout the entire loan.
In contrast to an adjusted rate mortgage (ARM), interest rates can increase or decrease without warning during the life of the loan. This can make budgeting difficult for homeowners because monthly payments are rarely consistent.
On the other hand, with a fixed-rate mortgage, monthly payments will be the same throughout the life of the loan.
Not only do fixed-rate mortgages keep the same payments, but they also have two terms people can choose from.
Fixed-rate mortgages can be financed as a 15 or 30-year term.
Both options have different pros and cons, which raises a few questions:
Which term is a better choice?
What are the main differences?
What should I choose?
We have all the answers to your questions!
What is the main difference?
The main difference is straightforward. The duration of the loan varies, which also directly affects the total of your monthly payments.
And here is how:
A 15-year fixed-rate mortgage loan is attractive to borrowers that want to pay off their loan faster. This is possible because a 15-year mortgage has higher monthly payments and less interest over the life of the loan.
On the other hand, a 30-year fixed-rate mortgage loan has lower monthly payments but a significantly higher amount of interest throughout the loan’s term.
When choosing between a 15-year and 30-year fixed-rate mortgage, the decision will ultimately be based on your financial situation.
You will need to determine how much money you are comfortable with putting aside for the down payment, monthly mortgage payments, insurance fees, and other financial obligations.
Deciding which option works for you can be determined with the help of your mortgage lender. They can evaluate your credit history, finances, and objectively reach a decision on what loan suits you most appropriately when you apply.
These experienced professionals will be able to explain both loans and point out key differences that may appeal more to you.
If you are stuck between the two, we have broken down everything you need to know.
30-year fixed
A 30-year fixed-rate mortgage is appealing to borrowers that want affordable and steady payments throughout the life of their loan.
This longer payment plan is attractive to homeowners who plan on living in the home for the full (or most of the) term.
If you do not see yourself moving in the future, this low monthly payment plan may be more suitable for you.
A 30-year fixed-rate mortgage is designed over a 30-year timeframe and consists of 360 payments. These payments are lower compared to a 15-year fixed-rate mortgage. However, you will pay more in interest since there is more time for it to accumulate.
Because payments are lower, it is easier for people to budget their finances. They will be able to anticipate monthly payments, which can help them consistently set aside the appropriate amount of money needed for other bills, loans, or debts.
A 30-year mortgage also gives borrowers the option to make additional principal payments each month, so they can pay off their loan faster.
15-year fixed
A 15-year fixed rate mortgage is ideal for borrowers that want to pay off their loan faster, pay less for their home and build equity quickly.
This shorter payment plan allows people to pay off their loans faster compared to a 30-year mortgage. This advantage gives people the opportunity to plan for future events or expenses that requires a large amount of money.
For example, if you plan to retire early, start having kids or want to begin saving up for college expenses, having a shorter loan life allows you to get rid of monthly mortgage payments sooner. Having this heavy financial responsibility lifted off your shoulders will help open up your finances for other extravagant expenses.
A 15-year fixed-rate mortgage is designed differently compared to a 30-year fixed-rate mortgage. Simply, the amount of time needed to pay off the loan is cut in half, meaning, it takes less time to own the home with a 15-year mortgage.
However, this route also entails higher monthly mortgage payments, but it requires a lot less interest to be paid for.
Did you know by choosing a 15-year fixed-rate mortgage can actually save you thousands of dollars in interest?
Quick recap
A 15-year fixed-rate mortgage is ideal for borrowers that want to pay off their loan fast and with less interest.
The shorter payment plan allows people to pay off their loans in half the time compared to a 30-year mortgage. This advantage allows people to plan for future events or expenses that require a large amount of money.
For example, if you plan to retire early, start having kids, or want to begin saving up for college expenses, having a shorter loan life allows you to get rid of monthly mortgage payments sooner. Having this heavy financial responsibility lifted off your shoulders will help open your finances for other large expenses.
A 15-year fixed-rate mortgage is designed differently compared to a 30-year fixed-rate mortgage. Simply, the amount of time needed to pay off the loan is cut in half, meaning, it takes less time to own the home with a 15-year mortgage.
This route entails higher monthly mortgage payments but will save you tons on interest over the life of the loan.
Quick recap
To sum it up, here is a little quick recap of what each term has to offer:
30-Year Fixed:
- Lower monthly payments
- Pay more for interest
- Able to budget easier
- 3-5% minimum down payment
- A minimum credit score of 620
15-Year Fixed:
- Higher monthly payments
- Pay a smaller amount in interest
- Able to build equity quickly
- 3-5% minimum down payment
- A minimum credit score of 620
What to choose?
As you can see, there are significant differences between a 15-year and 30-year fixed-rate mortgage.
It comes down to your finances and what you can afford.
You can ask your lender to paint a picture of both loan terms, so you can have a better understanding of what to expect. By having an estimate of your monthly payments, you can plan accordingly for the future.
Before choosing a term, compare lenders to see who can offer you the best interest rate based on your mortgage program and credentials.
Calculate your finances, research several lenders, and compare rates to see where you can get the best deal. Everyone’s situation and priorities are different, so the best choice is the option that works best for you.
Don’t forget that down the road, you can always refinance your mortgage loan to shorten or extend the term.
which one is for me?
