15-year vs. 30-year mortgages
A 15-year mortgage has a lower rate and builds equity much faster, but its payment is substantially higher because you repay the loan in half the time. A 30-year mortgage keeps the required payment lower, leaving room in your budget, at the cost of much more interest over the life of the loan.
An example
On a $400,000 loan, at 6.42% for 30 years and 5.61% for 15 years, the 15-year payment is about $784 a month higher but saves roughly $310,000 in interest. After 10 years, you would owe far less on the 15-year loan.
Which fits you
- 15-year: if you can comfortably afford the payment while still saving for emergencies and retirement, and want to be mortgage-free sooner.
- 30-year: if you want the lowest required payment, the flexibility to pay extra when you can, or to invest the difference.
A middle path
Many people take a 30-year loan and pay it like a shorter one with extra payments. You won’t get the 15-year’s lower rate, but you keep the option to fall back to the smaller payment if money gets tight.
Other terms to consider
Lenders also offer 20- and 25-year terms, and some will set a custom term like 22 years. These split the difference: lower payments than a 15-year loan, much less interest than a 30-year one. If you’re refinancing an older loan, matching your remaining term avoids resetting the clock. Run the numbers for a couple of terms before you choose.
Questions buyers ask
Can I switch from a 30-year to a 15-year later?
Only by refinancing, which has closing costs. Paying extra on a 30-year loan gets a similar result without refinancing, though at the 30-year rate.
How much more is a 15-year mortgage payment?
Typically 30% to 50% more than a 30-year payment on the same loan, even with the lower rate. On a $400,000 loan at current averages, the difference is roughly $750 to $800 a month.
Why are 15-year rates lower?
Lenders take less risk over a shorter term, so 15-year rates are typically about half a point to a point lower.
Does a 15-year mortgage make it harder to qualify?
Yes, because the higher payment counts in your debt-to-income ratio.
Should I refinance from 30 to 15 years?
Only if the higher payment fits your budget and the closing costs are recovered in a reasonable time.