Member FDIC NMLS #772685
Vice President - Mortgage Division
Is a 15 Year OR 30 Year Mortgage Loan Better For You?
If you’re looking to buy a home, one of the biggest decisions you’ll make is whether to go with a 15-year or a 30-year mortgage loan. There are some simple and straight forward mortgage calculators available online that will give you a good ballpark figure of what you can expect to be out each month based on which mortgage option you select, however, they are other things to take into consideration besides your monthly mortgage payment. An experienced mortgage professional will be able to guide you through the differences between a 15-year and a 30-year loan, but we’ve also collected some factors to think about when deciding what is best for you and your family.
What are the key differences between a 15- and 30- year loan?
The most obvious difference is the term of the loan. Additionally, generally 15-year loan terms will come with lower interest rates. The shorter term of the 15-year mortgage means that you’ll make higher mortgage payments each month, but you’ll save in the long term via both the lower interest rate you’ll have on your shorter-term loan and also because you’ll pay more towards the principal each month and you’ll pay less in overall interest than you would on a 30-year loan. Did you know that you might pay almost double with a 30-year mortgage over what you would pay on the same mortgage that’s a 15-year term? What would you do with the savings?!
Some people assume at first that your monthly mortgage payment on a 15-year mortgage will be double what it would be on a 30-year mortgage, but this simply isn’t the case. 15-year mortgages generally come with a payment that’s about 45-50% higher than it would be spread over 30 years – though you’ll want to consult a mortgage professional to determine mortgage payment amounts for your unique purchase and financial situation. For example, if you took out a $200,000 loan at 4% interest, you would expect to pay about $1475 each month for 15 years, or $955 a month for 30 years. As you can see, paying roughly an additional $500 a month will net you a home that’s paid off in just 15 years.
What are some considerations when deciding between a 30-year or 15-year mortgage?
You’ll want to talk to your lender and weigh any original fees, closing costs or other fees accompanying the loan and whether those amounts may vary between 15 and 30-year term mortgages. Also, you’ll want to look at where you’re at financially and in life: will you be nearing retirement in 15 years or in another position where having a paid-off home would be more benefit? Could you get a better rate of return investing the additional money you would have put towards your home, making a 30-year mortgage the better financial option? Do you have enough income and liquid savings to comfortably swing the additional mortgage payment each month that comes with a 15-year loan?
We suggest talking to a mortgage professional before deciding which loan is best for you. An experienced lender will be able to adequately evaluate your financial situation and discuss your concerns in order to help you make the best decision for you and your family.