This contributes to paying more in total interest over the life of your mortgage. “Another drawback is that, since your payments are lower than with a 15-year mortgage, you may rationalize that you can commit to buying a bigger home and get yourself into deeper debt for a longer period,” cautions Johnson.įinally, longer terms usually come with slightly higher interest rates. That means you’ll pay much more in interest over the life of the loan and your home equity will build much more slowly.Īs a result, if you sell your home before your loan is paid off - especially within the first 5 to 10 years of owning the property - you’ll make a smaller profit. The primary disadvantage of a 30-year term is that you are committed to making payments over a longer period. It also allows homebuyers to apply the money they are saving toward other household and living expenses,” Heck explains. “These lower payments make it easier to afford a home or to purchase a larger home and still stay within your budget. Payments are stretched out over a period twice as long, resulting in lower monthly payments,” says Heck. “A 30-year mortgage is the most popular option for homebuyers in the United States. Picking a 30-year mortgage can be a smart move for many. You can use a mortgage calculator to model your monthly payments and total interest on both loan types to see how they compare. Using Trott’s example above, you’d pay around $129,000 in total interest on a 30-year loan as opposed to about $50,000 on a 15-year loan - thus saving over $78,900 with the shorter term. And second, because you’re not paying interest for as long a time. First, because your interest rate is likely to be lower. So it’s worth comparing both loan types before you buy to see how your options break down.įinally, you’ll pay much less in total interest costs for a 15-year loan than you would for a 30-year mortgage. Of course, the exact payment amounts will depend on your credit score, down payment, interest rate, and other factors. On the other hand, “A 30-year mortgage on the same loan amount at 2.99% will trigger monthly payments of $1,053 - $614 less,” he explains. “Your monthly principal and interest payments will be $1,667.” “Imagine you take out a $250,000 loan over 15 years at 2.50%,” says Tom Trott, branch manager with Embrace Home Loans. Mortgage payments on a 15-year loan will likely be several hundred dollars more than for a 30-year loan. Just look how 15- and 30-year mortgage interest rates compare over the past six months, based on survey data from Freddie Mac:

“Differences in rates between 30-year and 15-year options have ranged, on average, from 0.5% to 0.75%,” says Rob Heck, head of origination at Morty.

That’s because, by agreeing to pay off the debt more quickly, 15-year borrowers present less risk to mortgage lenders. Traditionally, a 15-year mortgage loan comes with a lower interest rate than a 30-year mortgage. 30-year mortgage, then chose the right one for your financial situation. It’s up to you and your loan officer to compare the costs - and potential savings - of a 15 vs. As a result, many homeowners simply can’t swing the monthly payments. The main drawback to a 15-year mortgage is that monthly payments are much higher since you have to pay off the same amount in half the time. That doesn’t mean that a 15-year loan is always the best choice, however. “You can pay off the loan twice as quickly, over the life of the loan you pay much less in interest, and you grow home equity at a much faster rate,” says Robert Johnson, professor of finance at Heider College of Business, Creighton University. That’s why some homeowners opt for a shorter loan term in the form of a 15-year mortgage. The downside is, it can take longer to accumulate equity and pay off your loan. That’s because, quite simply, it allows for more affordable monthly payments. Is it better to get a 15-year or 30-year mortgage?įor many, a 30-year fixed-rate mortgage loan is the ideal product. So which is the best choice for you: a 15 or 30-year mortgage? That depends on several factors, including your financial situation, life goals, and what you can afford. But your monthly payments will increase substantially. This will pay off your loan debt in half the time and likely save tens of thousands in interest. You could also opt for a shorter loan term, such as a 15-year mortgage. Most borrowers choose a 30-year fixed-rate mortgage, which gives them three decades to pay off their home.

30 year mortgage should i pay it down