Balancing Your Budget: Choosing Between 15-Year and 30-Year Mortgages

Question

How do I choose between a 15-year and 30-year mortgage?

Answer

Homebuyers often face the dilemma of a 15-year mortgage versus a 30-year mortgage. While both loan terms can help you purchase a home, they differ in monthly payments, interest costs and long-term equity growth.

In a 15-year mortgage, you commit to higher monthly payments but enjoy a lower interest rate—typically 0.25–0.75% below comparable 30-year loans. This accelerated payoff schedule can save you tens of thousands in interest over the life of the loan and builds equity faster. On the other hand, a 30-year mortgage spreads payments over a longer period, reducing your monthly obligation and improving cash flow for other expenses or investments.

Monthly Payment:
- 15-year: Higher payment—about 20–30% more than a 30-year loan on the same amount.
- 30-year: Lower payment—eases budget pressure, freeing up funds for saving or remodeling.
Total Interest:
- 15-year: Pays off faster; interest cost can be 30–50% lower over the life of the loan.
- 30-year: More interest over time, but may allow you to invest the savings elsewhere.
Interest Rates:
- 15-year: Generally 0.25–0.75% lower than 30-year rates (Freddie Mac PMMS).
- 30-year: Slightly higher, but still competitive for buyers needing lower payments.
Financial Goals:
- 15-year: Ideal for buyers prioritizing equity build-up and interest savings.
- 30-year: Best for those needing flexibility, extra cash flow or planning to refinance.

Your choice should align with your monthly budget, long-term plans and risk tolerance. If you anticipate a steady income and want to pay off your home sooner, a 15-year term could fit. If you prefer lower payments or intend to invest surplus funds, the 30-year option may suit your strategy.

Before making a final decision, it’s advisable to review loan estimates, compare APRs and consult a licensed mortgage broker or financial advisor. Understanding how term length affects payments and total interest will help you select the mortgage that best supports your financial goals.