Article | 3:40 min read

What a 15-Year vs. 30-Year Mortgage Means for You


There are many decisions to be made when getting a mortgage. Possibly the biggest and most crucial one is choosing the life of your loan. Knowing the differences between the two can help you decide which plan would be best for you.

A family standing in front of a house they just bought

Here are some things you may want to consider when deciding which mortgage is best for your financial plan.

The amount of time it takes to repay

A big difference between a 15 and 30-year mortgage is the amount of time it takes to pay them each off. Depending on your financial situation, one may be better than the other. Thirty year loans will have smaller monthly payments, but in the end you will end up paying back more because of the interest over the 30 years. With a 15-year loan, you could save tens of thousands of dollars in interest, but have higher monthly payments.

For example: if you want to take out a mortgage loan for $125,000 at a 3.5 percent interest rate over 30 years, you would end up paying $202,069.05 over 30 years. If you were to have the same rate for a 15-year loan, you would instead end up paying $160,848.75 overall. That's a difference of $41,220.30 you would save/spend, depending on which loan plan you choose.

The interest rate

With the difference in how long it takes to pay off the 15 and 30 year loans, there is also usually a difference in interest rates. This means that if you were to apply for the same loan amount mentioned above, but the 15-year loan was at a 2.75 percent rate instead, in total, you would pay $152,689.68 over the life of the loan. If you compare this to the 3.5 interest rate you would have with the 30-year mortgage, you would save $49,379.37. This is not the same for every loan. To find out what your options are talk to a mortgage lender.

The kicker of this interest savings is the larger monthly payment. Go back to both the 15 and 30-year loans for $250,000 at a 3.5 interest rate. For your 15-year loan you would pay $1787.21 for principal and interest per month. If you had a 30-year loan, your monthly payment of principal and interest would be $1122.61 instead. For many people, not having to pay $664.60 can mean the difference between making a payment and having their home repossessed. There are also some other things to think about when choosing between a 15 and 30-year mortgage.

Your retirement plan

If you are planning to retire in the next 15 years and want to eliminate your mortgage before retiring, review your finances and talk to your financial planner to see if your income can support the higher monthly payments [1]. When you are retired you are dependent on a fixed income. The idea of having to pay an extra $500 each month for another 10 to 15 years after retirement may be harder than paying more while you are still working, and can work a few extra hours each week to pay it off.

Consider college and retirement savings

There are some situations where you may want to keep and invest the monthly money you save elsewhere. This could be a 529 account for college tuition or a 401(k) retirement account where an employer matches your contributions [2].

Look into your job situation

Do you have a steady job and at least six months of emergency savings set aside in case of loss of job? If for any reason you could see yourself not being able to pay the higher rates of a 15-year mortgage plan, you may want to look toward a 30-year mortgage.

Consider meeting in the middle

Investopedia says that there is a simple solution for 30-year borrowers to capture much of the savings of the shorter mortgage: simply treat the 30 year as a 15-year plan. As a borrower, you can choose the 30 year mortgage, but pay more each month (assuming there is no prepayment penalty). You can save almost the same amount, but if there are times where you are shorter on funds you won't be penalized for not paying extra that month.

Final Thoughts

Taking out a mortgage will probably be the largest purchase you ever make. No matter how much advice you get from friends and research, only you can make the final decision. Make a pro and con list of each option, and see which option would be best for your financial situation.


[1] 15-Year vs. 30-Year Mortgage - Comparison, Pros & Cons, Money Crashers
[2] Comparison of a 30-Year vs. a 15-Year Mortgage, Investopedia


The information provided in these articles is intended for informational purposes only. It is not to be construed as the opinion of Central Bancompany, Inc., and/or its subsidiaries and does not imply endorsement or support of any of the mentioned information, products, services, or providers. All information presented is without any representation, guaranty, or warranty regarding the accuracy, relevance, or completeness of the information.