A primary advantage common to both 15-year and 30-year mortgages is the predictability of fixed-rate payments, which allows borrowers to have a consistent, unchanging principal and interest payment for the life of the loan. Both options enable homeowners to build equity and secure financing to purchase a home.
Pros
The interest rate is often lower on a 15-year mortgage, because you make larger payments over less time. The term is half as long as a 30 year mortgage, so you'll pay a lot less interest over the life of the loan. A 30 year mortgage is twice as long as a 15 year mortgage.
Regardless of the exact loan term, short-term mortgages typically come with lower interest rates. However, they also require higher monthly payments because you're repaying the loan over a shorter period of time. Even though you'll be paying more each month, you'll pay less interest overall with a short-term mortgage.
Advantages of a 30-Year Mortgage
Enjoy lower, more affordable monthly payments. Free-up cash for savings, retirement, and other needs and expenses. Still qualify for higher loan amounts. Pay extra each month (when possible) towards the principle balance thus reducing the effective term of the loan.
Depends on the interest rate and whether or not you are disciplined about money. If the mortgage interest rate is less than a moderate return on some kind of investment and you are disciplined about it, then do the 30 year and invest the “extra” cash and you can make more money than you would if you did a 15 year.
The disadvantage is that, with a 15-year loan, you commit to a higher monthly payment. Many borrowers opt for a 30-year fixed-rate loan and voluntarily make larger payments that will pay off their loan in 15 years.
Key takeaways. A 15-year mortgage means larger monthly payments, but a lower interest rate. A 30-year mortgage offers a more affordable monthly payment, but you'll pay more in interest.
The longer the term, the higher the risk that the loan won't be repaid. With a 15-year mortgage, you can usually get an interest rate between 0.25% to 1% lower than with a 30-year mortgage. That might not seem like much, but the lower interest rate will save you thousands of dollars in the long run.
Shorter-term mortgages have higher monthly repayments, but this means you'll pay off the balance quicker. As a result, you'll own your home outright much sooner and pay less in total because you won't be charged as much interest.
15 Year Fixed Rate Mortgage.
15-year loan interest rates are usually lower than 30-year loan interest rates. This is one reason you'll probably pay less interest over the life of the loan with a 15-year mortgage, compared to a 30-year mortgage. The shorter loan term often decreases the cost of your interest, too.
The biggest advantage to a 15-year mortgage is saving money. Because a 15-year loan typically has a lower interest rate than a 30-year loan and you pay the loan off faster, you'll save money during the life of your loan.
A 15-year mortgage will have a higher monthly payment but a lower interest rate than a 30-year mortgage. Because you pay more toward the principal amount each month, you'll build equity in your home faster, be out of debt sooner, and save thousands of dollars in interest payments.
Pay less interest
As shown in the examples above, 15-year mortgages tend to have lower interest rates than 30-year mortgages. Also, because of the shorter repayment period, you'll pay less in interest over the life of the loan.
When you make an extra payment or a payment that's larger than the required payment, you can designate that the extra funds be applied to principal. Because interest is calculated against the principal balance, paying down the principal in less time on your mortgage reduces the interest you'll pay.
Pay extra toward your mortgage principal each month: After you've made your regularly scheduled mortgage payment, any extra cash goes directly toward paying down your mortgage principal. If you make an extra payment of $700 a month, you'll pay off your mortgage in about 15 years and save about $128,000 in interest.
A 15-year mortgage can be a smart financial decision for those who can afford the higher monthly payments. This option provides numerous advantages such as reduced interest rates, decreased overall cost, quicker accumulation of equity and the possibility of achieving financial independence sooner.
A 30-year mortgage is the most common term for mortgages because it offers the lowest and most affordable monthly mortgage payment. The mortgage payment is a fixed amount amortized over 30 years, or 360 monthly payments.
15- and 20-year fixed-rate mortgages
With a short loan term and lower interest rate, a 15-year fixed-rate mortgage or 20-year fixed-rate mortgage can help you pay off your home faster and build equity more quickly. The 15- and 20-year fixed-rate mortgages are especially popular for refinancing.
The 15-year mortgage has some advantages when compared to the 30-year (a more conventional choice), such as less overall interest paid, a lower interest rate, lower fees, and forced savings. There are, however, some disadvantages, such as higher monthly payments, less affordability, and less money going toward savings.
Cons: Higher total interest: With a 30-year mortgage, you'll likely have a higher interest rate compared to a 20-year mortgage. Additionally, you'll be making monthly payments for ten years longer, so you'll pay considerably more interest cumulatively.