15-Year vs. 30-Year Mortgages

Among the many decisions involved in choosing a mortgage, the loan term, meaning how many years you have to repay it, has a major effect on both your monthly payment and the total cost of the loan. This lesson focuses on two commonly discussed terms: 15 years and 30 years.

What the term length determines

The same loan amount and interest rate will produce a different monthly payment and total interest cost depending on the term chosen.

Monthly payment differences

A 15-year mortgage spreads repayment over half the time of a 30-year mortgage, which generally results in a noticeably higher monthly payment for the same loan amount, since the principal is being repaid faster. A 30-year mortgage spreads the same principal over a longer period, generally resulting in a lower monthly payment.

Total interest paid

Because interest accrues over time on the outstanding balance, a shorter term generally results in substantially less total interest paid over the life of the loan, even though the interest rate on shorter terms is sometimes lower to begin with. A longer term, while easier on monthly cash flow, generally results in more total interest paid because the balance is outstanding for a longer period.

Weighing the tradeoffs

• Monthly budget: a 15-year term requires a higher monthly payment, which needs to fit comfortably within your budget alongside other expenses.
• Flexibility: a 30-year term's lower required payment can leave more room in the monthly budget for other goals, such as saving or paying down other debt.
• Total cost: a 15-year term generally reduces the total interest paid, which can represent significant savings over the life of the loan.
• Building equity: because more of each payment goes toward principal on a shorter term, equity may build more quickly, though this varies with the specific amortization schedule.

Other term options

While 15 and 30 years are the most commonly discussed terms, some lenders offer other lengths, such as 20-year or 10-year terms, which fall between these tradeoffs. Availability varies by lender and loan program.

A common mistake

Neither term is universally correct. The best choice depends on your monthly budget, financial goals, and how you weigh lower payments now against lower total cost over time.