15 vs 30 Year Mortgage Pros Cons

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Which option is best for your financial situation?

Figuring out which option comes out on top in a 15 vs 30 year mortgage pros cons list can be simple, if you find the right program. The main difference between a 15 year and 30 year mortgage, other than the number of years it takes to pay back the loan, is how the monthly payments compare to total interest.

It is important to figure out if it is better to have a lower monthly payment but pay more overall.

So how can you decide?

Let’s look at the pros and cons.

15 vs 30 Year Mortgage Pros

There are many pros for both 15 and 30 year loans. The biggest advantages of a 15 year mortgage are being debt free sooner, earning equity faster, and paying less interest. On the other hand, a 30 year loan will have lower monthly payments, which can allow you to use your money for other financial needs. It also allows you to feel secure in case of job loss or other unexpected financial troubles.

What does this all mean, really?

If you were looking to purchase a house for $379,500 (the current average price today in the US) what would be the total amount paid on the loan?

older couple

The 15 Year Mortgage Scenario

If you were to get a 15 year mortgage for this house with the current interest rate of 2.99% (check here for the rates today) your monthly payments would be about $2,619. This is without taxes and insurance.

Now with this payment strategy, you would save more over the life of the loan in interest payments. A total of $13,755 would be the difference you could save over the 30 year counterpart. This is without factoring in taxes and insurance.

A 15 year mortgage offers peace of mind (in that you will be debt free in half the time) but it is important that you are able to make those higher payments.

What are some other benefits?

It can be a good solution for someone who is about 15 years away from retirement, so they can enter this new phase in their life without worrying about mortgage payments.  A 15 year mortgage is also a good starter house option because the house would not be at the top of the buyer’s budget and they would be able to pay it off fast before investing in a larger home.

young couple

The 30 Year Mortgage Scenario

Take that same house for $379,500 with a 3.80% interest rate and a 30 year fixed rate mortgage; you would be paying only $1,768 per month. That extra $851 each month could go towards retirement funds, general savings, or a special nest egg.

This is a great option for someone younger who wants to put a higher portion into their investment accounts. It allows for more flexibility in the present.  Plus most companies allow you to pay more than your monthly amount which means when you get a bonus or your tax return, that money could be used to pay off your mortgage faster. Extra money towards your payments can shave years off your mortgage.

However, one of the best parts of a 30 year mortgage is the low base payment. If you hit a financial struggle, you could continue to make the lower minimum payments in order to use your money where it is most needed.

 

15 vs 30 Year Mortgage Cons

Both are great options, so what do you need to consider?

With a 15 year mortgage, it is better to be prepared with a savings account that has enough for one year of expenses. Then if anything were to happen, you would not struggle to pay your mortgage.

Although you will have lower monthly payments with a 30 year mortgage, the interest overall is much greater— $257,090 total vs $91,908 from our above example. In either case, you could pay your mortgage down faster by making additional payments, but the data shows 97.3%  of Americans do not make regular extra payments according to the FDIC (Federal Deposit Insurance Corporation).

So how do you choose?

Which Mortgage Option is Best?

At the end of the day, both options are good for different reasons. It all depends on your financial situation and plans. Don’t worry about knowing exactly which will work best for you, that’s why we are here.

We help simplify the mortgage process. Contact your local Mortgage Consultant to chat with them about your options.

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