How to Choose Between a 30-Year & 15-Year Mortgage

Buying a home is a huge financial decision, and choosing the right mortgage can be difficult. If you're wondering whether to choose a 15-year mortgage or 30-year mortgage, here are 4 things to consider.

1) Can You Afford to Get a 15-Year Mortgage?

Although a 15-year mortgage offers a lower interest rate relative to a 30-year mortgage, thereby allowing borrowers to pay interest for only half as long, a 15-year mortgage comes with a higher total monthly payment. This is because the principal loan amount must be paid off faster, making each principal payment larger.

If you can afford the higher monthly payment associated with a 15-year mortgage, it might be worth considering.

2) Are You Buying Your First Home?

First-time home buyers often benefit from selecting a 30-year mortgage because the monthly payments are lower. A longer-term mortgage can make a more expensive home more affordable for a new buyer.

Of course, 15-year and 30-year mortgages are not the only options available to consumers. Borrowers can take an adjustable-rate mortgage, which offers a low initial rate that stays unchanged for some period, such as five years. When the period expires, borrowers could pay more if interest rates rise. But for buyers who are not looking to own their home for too long and who are confident that they will be able to resell the home, an adjustable rate mortgage may be a sensible option.

3) Are You Planning on Retiring Soon?

How close a borrower is to retiring plays a major role in whether to take out a 15-year mortgage. Typically, borrowers who take 15-year mortgages are at least 40 years old. These borrowers are often willing to pay off the balance on their mortgages faster in order to retire with little or no outstanding debt on their homes. However, many older homeowners also must weigh prepayment — making early payments on their mortgage — against the need to save for retirement. 

4) Do You Have a Strict Savings Plan?

Choosing a 15-year mortgage over a 30-year mortgage also may be a worthwhile choice if you are not a disciplined saver. But many people may lack the discipline needed to save long-term, especially in amounts that would offset what they would save by switching to a 15-year mortgage.

If you're wondering which is right for you, contact my office at 702.331.8185 and one of my team members will be happy to assist you.