Unless you’re among the wealthiest in our society, it’s nearly inevitable that you’ll need to apply for a mortgage when purchasing a home. However, despite being necessary for most home buyers, mortgages can be more complicated than you might expect.
Each mortgage comes with a unique set of guidelines, rules, and terms that you need to understand before you apply for one. Among the most important of those factors is your mortgage term.
In this article, we’ll discuss two of the most common fixed-rate mortgage terms, the 15 and 30-year mortgages. Soon, you’ll understand what each of these options are and their distinct pros and cons.
What’s the Difference Between a 15 and a 30-Year Mortgage?
The main difference between a 15-year and a 30-year mortgage is the length of time over which you’ll pay back your loan. As the name suggests, a 15-year mortgage is a mortgage you’ll pay off over the course of 15 years. Similarly, a 30-year mortgage is one you’ll have 30 years to pay off.
While 15 and 30-year mortgages can have many similarities, this difference in time frame has some significant impacts on how much you’ll pay monthly and how much interest you’ll owe. As you’ll soon see, each option can be beneficial in different budgeting scenarios.
At a glance, here are the main differences between the two:
mortgages:
| Criteria | 15-Year Mortgage | 30-Year Mortgage |
| Loan term | 15 years | 30 years |
| Interest rate | Generally lower | Typically higher |
| Monthly payment | Higher (roughly 25-40% more) | Lower |
| Total interest paid | Less over loan life | More over loan life |
| Equity buildup | Faster | Slower |
| Time to pay off home | Shorter | Longer |
| Budget flexibility | Less | More |
| Qualification difficulty | Harder (higher income needed) | Easier (lower income threshold) |
| Best for | Higher income borrowers, those near retirement | First-time buyers, tighter budgets |
Advantages and Disadvantages of a 15-Year Mortgage
When you take out a 15-year mortgage, you need to pay higher monthly payments than if you went with a 30-year mortgage. The reason for this is simple. With a 15-year mortgage, you have half the time to pay off the mortgage total, meaning that your monthly payments will likely be twice as costly compared to the monthly payments associated with a 30-year mortgage.
Higher monthly payments may present difficulties for those with limited monthly cash flow. However, the advantage of a 15-year mortgage is that you’ll end up paying less in interest in the long term compared to a 30-year mortgage.
Since that’s the case, if you’re someone with plenty of cash in the bank and you want to pay less overall interest, a 15-year mortgage might be the best option for you. Still, there are reasons why a 30-year mortgage can be preferable, as the next section will show.
Advantages and Disadvantages of a 30-Year Mortgage
In contrast to the 15-year mortgage, a 30-year mortgage gives you twice as much time to pay off your loan. Given that longer time frame, you can expect your monthly payments to be significantly lower than those you’d need to make with a 15-year mortgage.
However, you should still consider interest when choosing your mortgage types. As you might infer based on reading the last section, your overall interest payments with a 30-year mortgage will be higher since there will be twice as much time over which the interest can accrue.
For those who want the lowest possible monthly payments, a 30-year mortgage is an excellent option. However, you should know that choosing a 30-year mortgage term means you will end up paying more interest in the long run.
Other Fixed-Rate Mortgage Term Options
15-year and 30-year mortgages are two of the most popular types of fixed-rate mortgages. However, they are not the only terms that you can choose when taking out a mortgage.
For example, the shortest mortgage term you can use is a 10-year mortgage. With this option, you’ll have the highest possible monthly payments, but you’ll accrue the lowest amount of interest.
At the other end of the spectrum, the longest mortgage term is the 30-year. Between 10-year and 30-year mortgages, there are other mortgage term options at every increment of 5 years, meaning that 10, 15, 20, 25, and 30-year mortgages are all common options.
Typical Monthly Mortgage Payment Amounts
Now that you know more about the most common fixed-rate mortgage terms, let’s consider what your monthly payments will amount to. Of course, your monthly payments will depend on many factors, including the total cost of the home you’re buying, your down payments, interest rates, and specific requirements your lender sets.
However, with all those factors at play, we can still estimate average mortgage payments to help you get an idea of how much you’ll pay. In the United States, the average monthly mortgage payment for a 30-year mortgage is $2,715. The average monthly payment for a 15-year mortgage is $3,552.
Those numbers should give you an idea of how much you’ll need to adjust your budget to accommodate a mortgage. As we noted above, these numbers show that the monthly payment for a 15-year is far higher than that of a 30-year. Still, remember that these numbers are averages, and your monthly payment could end up being much different.
Fixed-Rate Mortgages vs. Adjustable-Rate Mortgages
Throughout this article, we’ve used the term fixed-rate to refer to 15 and 30-year mortgages. In fact, the 15 and 30-year terms typically only apply to fixed-rate mortgage loans. However, there’s another popular mortgage option known as an adjustable-rate mortgage.
We won’t go into all the details about the differences between fixed-rate and adjustable-rate mortgages, but we will cover the basics. As implied by its name, a fixed-rate mortgage is a lending option that maintains the same fixed interest rate for the entire loan term. By contrast, an adjustable-rate mortgage is a loan with an interest rate that can change throughout the term.
Adjustable-rate mortgages come with their own timeframes and other guidelines that are worth exploring. For many, fixed-rate mortgages prove to be easier to keep track of. Still, you should be aware of adjustable-rate mortgages before you settle on the lending option that’s best for your home purchase.
Want to Learn More About Mortgages?
There’s plenty more to learn about mortgages and homeownership. At times, having a team of trusted professionals on your side is the best way to ensure you’re working with the best information for your homebuying journey. If you want this kind of expert assistance, reach out to
Mortgage Financial Services today!