Should I Get a 15 or 30-Year Mortgage? | BMO Harris
 
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A young couple looks at paperwork deciding between 15 and 30 year mortgage.

Ready to buy a home? While you’re probably excited to settle into your new place, it’s not the only commitment you need to consider. You’ll also be getting into a long-term relationship with your mortgage.

How long exactly? Typically, most homebuyers opt for either a 15-year or 30-year mortgage. That’s a lot of time, so you’ll want to choose wisely. Read on to learn more about whether a 15 or 30-year mortgage is a good fit for you.

The basics of a 15-year vs. a 30-year mortgage

The 30-year fixed mortgage is a classic standby that homebuyers have been using for generations. Like the name suggests, your repayment period is 30 years. These types of home loans typically offer lower payments, making it an accessible choice for buyers looking to pay less month-to-month.

One major caveat to consider: the cost of interest. A 30-year fixed-rate mortgage tends to come with a higher interest rate than a 15-year loan. Plus, the longer term length means the interest has twice the amount of time to accumulate.

On the other hand, a 15-year fixed mortgage typically has higher monthly payments because you have less time to pay off the loan. But there are potential perks: A shorter mortgage can significantly lowers the total overall cost of your loan. Interest rates for 15-year mortgages are usually lower than 30-year options, and you may be mortgage-free sooner.

Related: Should you get a fixed or adjustable rate mortgage?

Let’s run the numbers. Say you need a $300,000 loan and your interest rates options are 4% for 30 years or 3.25% for 15 years. The 15-year mortgage would cost you $79,441 in interest, compared to a cost of $215,609 in interest for the 30-year loan.

But of course, there’s the monthly payment to consider. In this scenario, the 15-year loan comes with a significantly higher payment, about $2,108. That’s nearly 50 percent more than the 30-year option, which would be around $1,432 a month.

What to consider when choosing a 15 or 30-year mortgage

On the surface it seems choosing a 15 or 30-year mortgage is all about how much interest you will pay over time and what your monthly payments will be. In reality, there’s so much more to consider. Before deciding between a 15 or 30 year mortgage, consider:

  • Your income. If you aren’t taking a lot home each month, a high monthly payment from a 15-year mortgage may strain your finances.
  • Your home. Moving into a fixer-upper? You may want to consider a 30-year mortgage so you can have funds available for needed renovations.
  • Your expenses. Do you have any other big payments besides a house? Maybe student loans or a big car payment? Make sure your loan will fit into your monthly budget.
  • Your down payment. Will saving for higher monthly payments drain the funds you could use for a down payment? You might need to pay for private mortgage insurance, which could negate the benefits of a 15-year mortgage.
  • Your long-term plans. Is this a starter home of your forever home? If you’ll only be in this spot for a few years, it might make sense to stick with lower monthly payments. On the flip side, if you’re thinking about retiring soon, you may want to strive to be mortgage-free in your golden years.

The bottom line

Your mortgage is one of the longest relationships you’ll ever be in, so you want to choose wisely. There are pros and cons to both a 15 and a 30-year mortgage. Working with a mortgage banker can help you decide which is the best fit for you.

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