Compare 15 Year & 30 Year Mortgages
Unsure if you should choose a 15 or 30 year home loan? Use this calculator to compare your monthly payments and total interest expense. A shorter loan term typically comes with a lower interest rate & far less total interest paid, but you have to ensure you'll be able to afford the higher monthly payments.
Current 30 YR Fixed Mortgage Rates
The following table highlights locally available current mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
Comparing Your Home Loan Options
When it is time to figure out a mortgage solution that fits for you, you will compare and contrast many things. You will look at different lenders, different loan products and the different rates and terms that hold them all together. Hopefully, the end result is that you select a loan that is a good fit for you both now and in the future, as the loan matures.
This article will focus on comparing the differences between a 30-year mortgage and a 15-year mortgage and contrasting the advantages of each. While not meant as specific financial advice, it is intended to help you make a better, more balanced decision about your financing options.
Other Loan Options
Much of the below advice & many of the below concepts also apply to loans of other durations, but for sake of simplicity this article compares the 15 & 30 year options. 30-year fixed loans are the most common choice among home-buyers & people who refinance their homes, while the 15-year fixed is the next most popular choice. The 15-year is about twice as popular with home refinancers as it is for home buyers, but 30-year FRMs still make up about 90% of the overall home loan market.
Other fixed-rate loan terms include the 10-year & 20-year fixed, however they are less common choices than either the 30 or 15 year home loans. Loans which guarantee a fixed rate for a longer term typically charge higher interest rates than loans which guarantee rates for a shorter duration.
Adjustable-rate loans also typically have a fixed 30-year term. ARM rates typically start at a low initial rate for a 1, 3, 5, 7 or 10-year period & then reset annually based on a fixed margin above a floating reference rate like LIBOR. When ARM rates reset the monthly loan payments reset. The predictability of fixed-rate makes FRMs a far more popular among homeowners.
Rates change over time and vary by location, but here is a table which highlights sample rates across various loan types for a $200,000 home loan on a home valued at $250,000.
|Loan Type||Term||Initial Rate||APR||Initial Monthly P&I Payment||Origination Fees||Do Rates Change?|
|30-year fixed||30 years||4.13%||4.246%||$969.30||$2,860||fixed for duration of loan|
|20-year fixed||20 years||4.13%||4.262%||$1,225.17||$2,352||fixed for duration of loan|
|15-year fixed||15 years||3.63%||3.774%||$1,442.07||$2,026||fixed for duration of loan|
|10-year fixed||10 years||3.75%||3.790%||$2,001.22||$381||fixed for duration of loan|
|10-1 ARM||30 years||4.00%||4.503%||$954.83||$2,424||adjust after 10th year|
|7-1 ARM||30 years||3.75%||4.559%||$926.23||$2,910||adjust after 7th year|
|5-1 ARM||30 years||3.75%||4.701%||$926.23||$2,702||adjust after 5th year|
|3-1 ARM||30 years||3.5%||4.593%||$898.09||$105||adjust after 3rd year|
|1 Year ARM||30 years||3.35%||4.4172%||$897.65||$237||adjust after 1st year|
The obvious difference between a 15-year and a 30-year mortgage is the duration. One being twice as long as the other will certainly impact a few things for each borrower, not the least of which is the number of payments to make over time.
In many cases, individuals will look to a 15-year loan in an effort to become debt-free, faster. This may be because they are older or might have plans that involve becoming financially independent more quickly.
Most younger borrowers will opt for the 30-year fixed-rate mortgage. This loan will tend to offer them the most reasonable rates over time, despite the duration of payments to make. It is probably the most common form of financing young home-buyers will use to secure their homes.
And while it is true that you can save 15 years of payments and with it, the interest they would accrue, there are other factors to weigh beyond simply the calendar’s measure to make the right choice in your mortgage.
As the time increases, so to, will the cost of borrowing. For this reason, a 15-year mortgage will have a lower interest rate and APR than a 30-year mortgage for the same amount. This is because the shorter time period has less risk to the lender, so can come with better terms. An example might be, 4% interest for 30-year, compared to 3.25% for 15.
The difference in rates will result in a different monthly payment for each product. The monthly mortgage payment amount is a big reason that many people opt for the 30-year plans – they are worried that the extra money needed every month for a 15-year mortgage will be a challenge.
If we continue to use the same example, and attribute a loan principal of $200,000, you can see the difference plainly:
|$200,000 principal||15-year mortgage (3.25%)||30-year mortgage (4%)|
|Annual payment amount||$16,864.05||$11,457.97|
|Total interest paid||$52,960.76||$143,739.01|
In pure terms of cost, the 15-year mortgage is going to be a much better option. You will pay more than double the amount of interest in 30 years, and that money could be spent in a variety of other ways that are more beneficial to you and your family. For example, you could maximize retirement accounts instead of paying more money toward your home.
Interest rates for a 15-year are always going to be better than those offered for a 30-year plan, to cover the lender’s risks. Quicker payoffs garner better terms. Usually the difference in interest rates is anywhere from a quarter of a percent to a full percentage point. Both options will offer fixed rates, and the rates are competitive with other loan products, like FHA or VA loans.
Fees and associated costs are usually higher with a 30-year mortgage than with the shorter one. Many of the 30-year mortgages will allow you to roll these fees and costs into the loan.
Job security, and income flow in general will definitely figure prominently in your decision-making. Though you may be able to easily afford the 15-year payments now, do you have the job stability that ensures steady payments through the loan’s maturity? Where you are, specifically, in your job cycle and your life’s trajectory will certainly have an effect on which option fits better.
A common strategy for people who are trying to decide between these two lending products, is to choose the 30-year option and then make extra payments. By following this path, you can have the benefit of a lower monthly obligation but can shave-off time by paying extra on your principal. It will reduce the total amount of interest you pay and decrease the number of payments you make, greatly reducing your cost overall.
You want to check with your lender on any potential prepayment penalties, but most often, you can prepay without issue, and usually apply it directly to reducing the principal.
Another option that can work well for both 15- and 30-year mortgages is to make bi-weekly payments instead of monthly ones. This can help you to decrease your amount of interest paid, as well as the length of time you are making payments. It will not have quite the impact of extra payments, but it will have a positive effect on your cash flow.
If you are an older borrower nearing retirement, a shorter mortgage is usually a smarter option. You can protect yourself from an unknown future by reducing the time you will owe on a mortgage. When you are nearing retirement, a 30-year mortgage may not be a shrewd move.
Whether you decide on a 15-year mortgage or lean towards a 30-year plan, it is important to fully understand the implications and the responsibilities associated with either direction.
When you can afford the higher payments of the 15-year mortgage, most experts would suggest it over the 30-year, just in terms of cost savings. However, this is with the caveat that all other retirement vehicles (401K, stocks, etc.) are maximized as well. If you are not going to use the savings in cost to bolster your personal economics it may be better to go with the higher payments because over time, you will pay much less that way. You also end your debt obligation more quickly.
There will be definite time periods when one loan will make more sense for you than the other. For instance, a first-time home buyer might select the 30-year option, while a borrower who is 55 might more reasonably choose a 15-year plan. Your personal situation and earning capacity will definitely play into the mix, as will your goals.
It is important to remember as well, that you can choose the 30-year option and pay on it like it was a 15-year loan instead. This may be the best way for you to get the most out of your mortgage direction, for though the interest rate and APR will be slightly higher with the 30-year, your legal obligations every month will be lower, which puts more decision-making power in your hands.
As with any financial direction, it is important to weigh out all your options and talk to a trusted and qualified advisor before making a commitment. But in the end, if you choose either a 15 or a 30-year mortgage you can find a loan that fits your needs and situation, entering or continuing through the world of home ownership.