15 vs 30-Year Mortgage – What To Do?

You have weighed the pro’s and con’s of buying vs renting. After much debate, you have just made arguably the biggest decision of your life…… to buy a home. Congratulations!

Owning a home has been called the “American Dream” and you’re about to live it! Now comes a big question, how are you going to pay for it?

Here’s the answer most people use: a mortgage.

So What’s a Mortgage?

Per Investopedia and in its simplest terms, a mortgage is a type of loan you can use to either buy or refinance a house. Mortgages are also referred to as “mortgage loans”. Mortgages enable buying a home without putting all the cash in upfront.

Housing Loan

Mortgages are also referred to as secured loans. With a secured loan, the borrower promises collateral to the lender if payments are discontinued. In the case of mortgages, the collateral is the home. If payments are not made, the lender can take possession of the home. This process of surrendering a home is called a foreclosure.

When a mortgage is secured, the lender gives you a set amount of money to buy the home. You agree to pay the loan back, with interest, over a period of several years. Technically, you do not own the home until the mortgage is paid off in full.

To qualify for a mortgage, certain eligibility requirements must be met. A person will need a reliable income source, a debt-to-income ratio of less than 50%, and a minimum credit score or 580 for FHA loans or 620 for conventional loans.

The interest rate you qualify for is determined by 2 things: current market rates and the amount of risk the lender takes on to loan you money. Current market rates are outside your control. What you can control is how the lender views you as a borrower. The higher your credit score and the fewer the red flags on your credit report, the lower the interest rate you will qualify for.

The amount of money you can borrow will depend on what you can afford and what the fair market value of the home is which is determined via an appraisal. The lender cannot lend an amount higher than the appraised value of a home.

There is also a plethora of mortgage types to choose from: 30-year fixed, 20-year fixed, 15-year fixed, 5 -year ARM, 7-year balloons, etc. The question you need to ask yourself is “which one is best for me?”

What Type of Mortgage Do I Need?

That’s a good question! The 2 most common types are the 15-year fixed and 30-year fixed mortgage.


The main difference between a 15-year and 30-year mortgage is how long each one lasts. A 15-year mortgage gives you 15 years to pay off the full amount you’ve borrowed to purchase your home while a 30-year mortgage gives you twice as much time (30 years) to pay off the same amount.

Both mortgages are structured as fixed – rate loans. This means you’ll lock in an interest rate at the beginning of the mortgage and keep that interest rate throughout the entire time you have the loan. Consequently, your monthly payment will also be the same during the entire term of the mortgage.

Another difference between a 15-year and 30-year mortgage is the interest rate. 15-year mortgages normally have a lower interest rate than 30-year mortgages. This is because since you’re paying off the mortgage over a longer period, you are more of a risk to the lender for defaulting on the mortgage. To make this extra risk more palpable to the lender, they charge a higher interest rate.

How does this risk add up over time? The difference can be huge!

Using Dave Ramsey’s mortgage calculator, let’s assume a $200,000 home is purchased and a 20% down payment is made. A typical 15-year mortgage will charge around a 3.66% interest rate and the subsequent monthly payment (including principal, interest, and home insurance) is approximately $1,410. The same house using a 30-year mortgage and 4.33% interest rate has a monthly payment (including principal, interest, and home insurance) of approximately $1,048.

Using another of Dave Ramsey’s calculators, while the monthly payment is much lower for a 30-year mortgage, the amount of interest generated is much larger. For a 30-year loan using same assumptions above, the total home payoff (principal + interest) is $286,059. For a 15-year loan, the total home payoff (principal + interest) is only $208,156. By reducing the term length by 15 years, you pay approximately $78,000 less in interest! That is $78,000 more money in your pocket.

The debate over which one to use comes down to 2 things:

  • The monthly payment you can afford
  • The preference for using the difference in monthly payments

If cash is tight, you might be more inclined to a 30-year mortgage. Even though you pay more in interest, the 30-year mortgage will buy you time until your income level increases to the point where your finances achieve some flexibility. What good is trying to pay off your house faster if it leaves you vulnerable to foreclosure?

Your income can only go so far and sometimes we must make tough choices. While paying off your house faster is very appealing, what if you have a family and their needs must be met as well? For example, if married with kids, that extra money saved could be used to fund a 529 plan for their college education, pay for their daycare, or even purchase dance lessons for your kids. The choices are endless and tough to make. That extra money each month can go a long way towards these needs.

Before a choice is made, let’s look at the pro’s and con’s of each.

15-Year Mortgage Pro’s and Con’s


While the 30-year mortgage is much more popular with the general public, there are several advantages going with a 15-year mortgage.

The biggest benefit is the term of the mortgage. You can own your home outright in half the time it takes using a 15-year mortgage. As we discussed above, owning your home in less time puts way more money back in your pocket as interest saved vs. a 30-year mortgage.

Another great benefit by paying down the mortgage more rapidly is building equity more quickly than a 30-year mortgage. Equity is the value of your home minus outstanding loans. Think of it this way: When you put 20% down to buy the house, you partner with the bank to loan you the money for the remaining 80%. As you pay back the bank, you accrue more equity while the bank accrues less equity until you outright own 100% of the home.

Getting equity faster plays to your advantage if you decide to sell your home before the mortgage is paid in full or if you need to take out an additional loan on your home such as a home equity line of credit. It’s also easier to refinance an existing mortgage if you have significant equity at your disposal.

Lastly, a 15-year mortgage also means you will get a lower interest rate than a 30-year mortgage. Since the term of the loan is shorter and paid back faster, there is less risk of default for the bank, so they reward you by giving a lower interest rate. Since 15-year mortgages are at a fixed interest rate, the lender is taking a risk that market interest rates will not go up significantly before they are paid back in full.


About the only disadvantage to a 15-year mortgage is that the shorter term drives a higher monthly payment. A higher payment means less flexibility for unexpected expenses or a financial crisis.

How much higher can a payment be?

Depending on the size of the mortgage, it can be a lot. Going back to the above example, the monthly payment difference on a $200,000 home is roughly $350/month or a 26% increase.

This can be a huge amount that you must pay every month and reduces your options if an unexpected event occurs.

This alone might make getting a 15-year mortgage unpalpable for some people.

Which is why a 15-year mortgage is a common tool for refinancing. For example, a borrower secures a 30-year fixed mortgage. After 7 years, the borrower decides to refinance to a lower rate and lower term (15 years). Their payment goes up 20-30% but is ok now since the higher payment is offset by them earning more income. In the end, the borrower owns the home outright in 22 years… nice! 😊

30-Year Mortgage Pro’s and Con’s


The 30-year fixed mortgage is by far the most popular option for homeowners for a variety of reasons. One of the main advantages is that the payments are stretched over a much longer period of time which creates lower monthly payments. Lower payments make it easier to afford a home especially if unexpected circumstances occur while owning the home.

Another advantage of having lower payments is that the money saved could be invested. By investing the money saved to earn more money over the life of the mortgage, it opens several possibilities. The invested money could be used to supplement your 401K, it could be used to start a college fund for your children, and it could also be used to make a lump sum payment to pay off the mortgage faster. 

For example, if the extra money that would have been used on a 15-year mortgage is invested conservatively at a 7% rate, does it make sense to use that money to pay down a mortgage at 3.66%?

Also, going with a 30-year mortgage enables a larger yearly tax deduction. When you take longer to pay down the mortgage, you also pay more interest each year because the interest is calculated on the remaining balance of the loan. The best way to take advantage of this is to itemize deductions so that the mortgage interest paid during the year can be deducted. In other words, more interest paid equals a larger tax deduction.

Keep in mind that mortgage interest is only deductible on up to $750,000 in mortgage debt or $1M in mortgage debt if the home was purchased before December 16, 2017.

Lastly, going with a 30-year mortgage means you can buy more home for the same price as a 15-year mortgage. Using the $200,000 home example, a 15-year fixed mortgage at 3.66% equates to about a $1,410 monthly payment. Let’s assume you can afford this payment, but the house is a bit small for your family’s needs. Switching to a 30-year mortgage at 4.33% means you can afford a $275,000 house! While it will take a lot longer to payoff the house, your family has the house that meets their needs.


The main disadvantage of a 30-year mortgage is that it takes twice as long to payoff and own your home outright. This means financial freedom is delayed 15 years more until the home is paid off.

The other disadvantage of 30-year mortgage is that the interest rate is higher than a 15-year mortgage.  That higher interest rate leads to paying a lot more interest over the life of the mortgage.

Let’s go back to the $200,000 home example we used previously. For a 30-year loan using same assumptions above, the total home payoff (principal + interest) is $286,059. For a 15-year loan, the total home payoff (principal + interest) is only $208,156. By using a 30-year term length, you pay approximately $78,000 more in interest!

Such is the price to pay for financial flexibility……

Now What?

There you have it. The pro’s and con’s of both a 15-year and 30-year mortgage.

Now the $10,000 question: what to do?

15 vs 30 year mortgage

Before you decide, there are other options that haven’t been discussed and may prove useful for suiting your needs.

What are these other options?……………. Tune into next week’s article to find out. You won’t want to miss it!

Live The Life You Love, Want, and Deserve 😊