15 vs 30 Year Mortgage Loan: Pros, Cons & Interest Tips

When you’re in the process of buying a house, it’s very common to wonder whether a 15 or 30 year mortgage will work best for you. There are actually pros and cons to both longer and shorter loan terms.

There really isn’t a correct or better choice for a mortgage loan that will work best for everyone. Your specific situation and future financial goals will determine if you should get a 15-year or a 30-year loan.

Mortgage Loan Approval

Before I actually talk about some of the advantages and disadvantages of each loan length, I want to discuss getting approved for the mortgage first. Ultimately, not everyone that wants a 15-year mortgage loan can actually get approved, so this could obviously affect your plans.

The reason why you could get approved for a 30-year loan but denied for the 15-year is because of your income and DTI (debt to income ratio). When you try to get a shorter loan term for your mortgage, you’ll drastically increase the monthly payments. That monthly cost is then factored into your DTI to determine whether you can afford to buy the house or not.

If the house you want to buy is at the higher end of your income level for a 30-year loan, then a 15-year may simply not be an option for you. However, this may not actually end up making a huge difference in the long run. Later in this post I’ll be talking about how to pay off a mortgage is only 12 years instead of 15 or 30.

Interest Rates

The #1 reason why you should want to get a 15-year mortgage is because of the interest rates. Simply put, banks will give you a lower interest rate for a shorter loan term. This can work out to your advantage over the lifetime of a loan.

Here’s an example using current market conditions to buy a $400,000 house with a 20% down payment – conventional loan without PMI for the sake of simplicity:

Loan Term	APR	Monthly Payment	Total Interest Paid
30 Years	6.65%	$2,337.62	$419,543.53
15 Years	5.43%	$2,886.13	$148,503.21

The main thing you should notice here is the drastic interest savings that you get with a 15-year mortgage. You pay more than $250k extra in interest by simply having the longer loan term.

Monthly House Payments

Using the example above again, take a look at the monthly payments that you would have to pay for your house in those scenarios. The shorter loan requires half the number of payments, but it’s nowhere close to being double the payment.

With this example, you’d pay about 23% more each month but only have to make half as many payments. This is obviously a much better situation for the homeowner when they have a 15-year mortgage loan.

While a shorter term works out the best financially for the homeowner instead of the lender, it’s also important to remember that this locks in the higher payment each month. You have to be able to get approved for the larger payment with your income and DTI, plus you have to continue to afford the higher payment every single month for 15 years.

Paying Extra

Most people know that you can pay additional money towards your mortgage each month, and this amount is automatically applied towards the principal to pay off the loan faster. However, how does this really work out with a 15 vs 30 year mortgage?

Let’s say you take the 30-year loan option with the higher interest rate and simply intend to pay extra each month towards your mortgage to pay it off faster. Will you pay more or less in interest over the lifetime of your loan?

The table below shows you monthly payments and total interest paid when you pay off the 30-year loan faster:

The 15-year loan had a monthly payment of $2,886.13. Paying a similar amount of $2,885.65 on your 30-year loan would pay it off in full in 17.25 years. That’s 27 extra months worth of payments to achieve the same result. You end up paying about $70,000 extra overall because of the higher interest.

To pay less total interest on a 30-year loan than you would on a 15-year loan, you’d have to pay it off in 12 years or less. In the example above, it took $3,514.75 to pay it off in 12 years, and this beat the 15-year interest charges by around $3k. You’d pay $630 extra per month to achieve a slightly better result.

15 vs 30 Year Mortgage Comparison

As you can see from the examples and calculations that I’ve included here, the 15-year loan is the much better option if you are confident that you can afford the higher payments each month. The 30-year mortgage gives you a lower payment with a lower risk of default, but you’ll pay more over the lifetime of your loan.

Ultimately, if you really think you can pay off a 30-year mortgage in 12 years to get even higher savings, you can actually save much more by paying off the 15-year loan in 12 years instead. That would require monthly payments of $3,312.48 and you’d pay $116,197.33 in total interest. You’d pay nearly $30,000 less this way, so the 15-year loan will always be the cheapest option if you can maintain steady payments.

When interest rates are higher, like they are currently, it could potentially be best to try to pay off your mortgage early. However, if you have a much lower APR like 3%, you may be better off investing your extra money each month instead of paying it towards your house. When you can beat your mortgage interest rate with returns on an investment, the best financial decision is to go with the investments.

The best choice for a 15 vs 30 year mortgage will depend on your specific situation, so please be sure to examine your APR, income, home purchase price and other details before making a final decision.

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Loan Term	APR	Monthly Payment	Total Interest Paid
17.25 Years	6.65%	$2,885.65	$218,679.32
12 Years	6.65%	$3,514.75	$145,324.32