A 15-year mortgage costs less in the long term, as total interest payments are lower than those of a 30-year mortgage. The cost of a mortgage is calculated based on an annual interest rate, and since you're going to borrow the money for half the time, the total interest paid is likely to be half of what you'd pay in 30 years. With a 15-year mortgage, you'll be free of mortgage debt in half the time as with a traditional 30-year mortgage. With fewer payments, you'll also pay less interest.
Depending on the size of your loan, this could mean a difference of tens of thousands of dollars over the life of the loan. A 15-year mortgage is designed to be paid off in 15 years. A 30-year mortgage is structured to be paid in full in 30 years. The interest rate is lower on a 15-year mortgage and, since the term is half as long, you'll pay much less interest during the term of the loan.
Of course, that means your payment will also be higher than with a 30-year mortgage. There is also the option of refinancing a 30-year mortgage to a 15-year mortgage in the future, if your financial situation changes and you want to pay off your mortgage loan faster or lower your interest rate. You can make the right mortgage decision if you choose a 15-year fixed-rate mortgage from the start. Reformulating the mortgage is an excellent way to reduce the monthly payment and, at the same time, maintain the interest rate and avoid the charges associated with refinancing.
If a 15-year mortgage exceeds that 25% limit, you might be tempted to choose a 30-year mortgage to lower your monthly payment. However, if you don't plan to stay several years, or if you want a lower rate, a 15-year fixed-rate mortgage or an adjustable-rate mortgage may be a better option. If you have a solid idea of these factors, you can assess whether it's more feasible for you to continue making mortgage payments as scheduled or to cancel the mortgage and invest the funds. However, a 15-year mortgage means you'll have your home amortized in 15 years, instead of paying the entire 30-year mortgage, as long as you make the minimum monthly payments required.
If you don't have access to a specialized 15-year versus 30-year mortgage calculator, don't worry, it's easy to use a regular mortgage calculator to compare the payments you can expect to see for these two types of loans. Over the past few years, the average interest rate for a 30-year mortgage has been between 0.5 and 1% higher than that of a 15-year mortgage. A 15-year mortgage tends to have a lower interest rate, although mortgage rates have generally been low for some time. As an alternative, a 30-year mortgage might be better for someone who has a more limited budget or wants to save money by paying less for their mortgage but for a longer period of time.
Get Forbes Advisor ratings on the best mortgage lenders, tips on where to find the lowest mortgage or refinance rates, and other tips for buying and selling real estate. A 1% difference in the mortgage rate for a 30-year mortgage could save tens of thousands of dollars over the life of the loan. However, monthly payments are higher in a 15-year mortgage because the principal pays off faster than in a 30-year mortgage.
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