30-Year Vs 15-Year Mortgages: Which One Should You Choose?

August 11, 2021
Last updated:
May 17, 2022
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For most homebuyers, the 30-year fixed-rate mortgage is the most commonly used mortgage product. And that’s primarily because they are much easier to fit into a budget.

As a longer-term mortgage product, borrowers can pay for a house over a much longer time frame, which means their mortgage payments are a lot lower. This makes homeownership more affordable for the average American.

But according to conventional wisdom, paying as little interest over the life of your loan is important. Obviously, you don’t want to pay any more for your home loan than you have to. Also, it’s a widely held notion that you don’t want to hold on to a loan for too long. As such, it may be best to try to pay off your mortgage as quickly as possible.

Yet although this might make sense in theory, it leaves out key tactics that allow you to grow your wealth over time and become financially free sooner rather than later.

That said, there are some benefits to a 15-year fixed-rate mortgage

Benefits of a 15-Year-Fixed-Rate Mortgage

The perks of a shorter-term home loan include the following:

Lower interest rate. Generally speaking, landlords may be open to offering a lower interest rate to buyers who are able to make higher monthly payments to pay off their mortgage in a shorter period of time.

Less interest paid. Since you’re paying your mortgage off in half the time as you would with a 30-year fixed-rate mortgage, you’ll pay less interest over the life of your loan. In fact, you could potentially save tens or hundreds of thousands of dollars in interest by the time the term of your mortgage ends.

Own your home free and clear sooner. Since you’re paying your mortgage off faster you’ll be in the clear a lot faster than you would be with a longer-term mortgage.

That said, there are plenty of drawbacks to a 15-year fixed-rate mortgage as well.

Drawbacks of a 15-Year Fixed-Rate Mortgage

The cons of a 15-year fixed-rate mortgage include the following:

You’re tied to a higher mortgage payment. In order to be able to pay off the entire loan amount in just 15 years, your mortgage payments will have to be much higher than they would be with a 30-year fixed-rate mortgage. And you’ll be stuck with these higher payments throughout the duration of the mortgage term. The only way you’ll be able to lower those payments is to refinance your mortgage.

You are spending more money on your investment. Compared to the return on your investment in your home, you’re spending quite a bit of money compared to other types of investments. Leveraging is a powerful tool among investors, but if you over leverage yourself, you limit your investment opportunities and earnings potential.

Less access to cash when you need it. Life throws curve balls all the time, and they often require a sizeable amount of money to take care of. If all of your money is tied up in your mortgage, then you’ll have little leftover for a rainy day, leaving you financially strapped and stuck in a potentially precarious position.

Difficult to borrow money. You never want to be in a position to have to borrow money when you’re in a desperate situation.

You could be cash-poor. If inflation rises in the future, the last thing you want to do is pay down your mortgage faster. You could be house-rich and cash-poor. If all of your net worth is tied up in your home, the only way you can access your wealth is to sell your home or refinance.

For these reasons, the 30-year fixed-rate mortgage is a much more attractive option for most homebuyers.

Why Go For a 30-Year Fixed-Rate Mortgage?

There are plenty of reasons why a 30-year fixed-rate mortgage may be better suited for you:

Lower mortgage payments. Perhaps the biggest perk of a 30-year fixed-rate mortgage is the lower mortgage payments, as mentioned earlier. Smaller payments can fit much more easily into your budget, which means you won’t have to do as much scrambling to make sure all your bills are covered each month.

Open your budget to other investments. Since you’re not tied to higher mortgage payments, you’ll have more money leftover to invest elsewhere. That’s the beauty of a mortgage: it allows you to leverage an asset while focusing your funds on other investments that may bring you a higher ROI with a smaller upfront investment amount.

Ability to buy a more expensive home. These days, lenders are required to stress test your ability to meet mortgage payments, including when interest rates potentially increase in the future. This can limit the amount that the lender may be willing to lend to you, especially if they’re not quite sure whether or not you’ll be able to meet repayment requirements. But by lowering your monthly payments, you may be able to increase the amount that you can borrow.

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Consider Some Additional Facts

If you’re still not convinced that a 30-year fixed-rate mortgage is a better option than the shorter 15-year term, consider these facts:

  • You can still pay back a 30-year fixed-rate mortgage in 15 years — or any time before 30 years — if you have the financial capability to do so.
  • The 30-year fixed-rate mortgage will only take 30 years to pay off if you make the minimum payments. You can always make higher payments as long as you follow the stipulations of your mortgage.
  • Any additional payment you make will reduce your mortgage principal and shorten the term of your loan.
  • You can always make higher payments and pay your loan off faster during good times when money is flowing, while still having the flexibility to make lower payments when times are a little tougher.

At the end of the day, if you choose to go with the 15-year fixed-rate mortgage, make sure you do so only with the support and guidance of your financial advisor who understands your goals and finances inside-out.

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Ready to Take Out a Mortgage?

If you’re planning to buy a house sometime soon or have questions, give us a call. Sammamish Mortgage has been helping borrowers across the Pacific Northwest since 1992 and we have plenty of mortgage products to choose from. Get in touch with us today to discuss your needs, to get pre-approved for a mortgage, or to get a free rate quote for a mortgage.

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