15-Year Versus 30-Year Mortgages

Today's Topic: Is a 15- or 30-year Mortgage Better.

Elizabeth Carlassare
3-minute read
Episode #19

Home LoanToday’s Topic: Is a 15- or 30-year Mortgage Better?

Last week’s episode was about paying versus not paying points when you get a mortgage, and Episode 16 was about how to decide on a fixed versus an adjustable mortgage. This episode is about another important decision you face when selecting a mortgage: how to decide which loan term is best for you.

A generation ago, the decision was easier because there were fewer choices. Most everyone went with a 30-year fixed loan. Today, there is a wider variety of mortgage loan types and terms. You can choose a 15-, 30-, or 40-year term (and some lenders offer 20- and 50-year mortgages too).

So how to decide?

The Benefits of a Long-Term Loan

A longer-term loan, such as a 30- or 40-year loan, gives you the most flexibility. The longer the loan term, the lower your monthly payment, since you’re stretching out repayment over a longer period of time. And since the monthly payment is lower, loans with a longer term are easier to qualify for than loans with a shorter term.

When you get a loan, one of the documents the lender is required to give you is a "Truth in Lending" statement. It’s best to take a seat before looking at it because it shows you the scariest number you’ll see on your loan documents: the total amount of the payments you would make over the life of the loan if you were to keep the loan for the entire term. The shear size of the number can be quite a shock! When I got my first home loan, I was stunned to see that this number was twice as much as the loan amount!

This big number is the reason some people opt for a 15-year mortgage. They want to reduce the amount of interest they’ll pay over the life of a loan. But here’s an important tip: You can get a 30- or 40-year loan instead and pay it down more quickly if and when you want to by making extra payments on the principal. You can choose to pay it off over 15 years or 20 years or whatever other term suits your plans best. This puts you in the driver’s seat and gives your more control and flexibility.