15- vs. 30-year Mortgages Explained

Choosing between a 15- and 30-year mortgage depends on your budget, how long you plan to stay in your home, and your long-term financial goals.

• 15-year mortgages have higher monthly payments but lower interest rates and faster equity build-up.
• 30-year mortgages offer lower monthly payments and more flexibility, especially for shorter stays or retirement planning.
• Making extra payments on a 30-year loan can combine flexibility with faster payoff and interest savings.

When preparing to buy a home or refinance your mortgage, the most common question we hear at The Police Credit Union is, “Which is better, a 15- or 30-year mortgage?” The answer is very individualized, as there are pros and cons to both. Here’s what you need to know when considering a 15-year mortgage or a 30-year mortgage. 

Affordability of 15- vs. 30-Year Home Loans
Fifteen and 30-year home loans are typically fixed-rate mortgages, which means the interest rates stay the same over the course of the loan. The major differences between 15-year and 30-year mortgages come down to interest rates and payments: 

• A 15-year mortgage generally provides lower interest rates but a higher monthly mortgage payment.
• A 30-year mortgage generally comes with higher interest rates but a lower mortgage payment.

For most people, the biggest advantage of a 15-year mortgage is the lower interest rate, which can help save a lot of money in the long run. Another benefit of a 15-year home loan is that you’ll build equity in your home much faster. In comparison, selecting a 30-year mortgage is attractive because the monthly payments can be much lower, sometimes up to 50%. For example, you might pay $2,000 a month for a 15-year mortgage and $1,300 for a comparable 30-year home loan.

When debating the pros and cons of each mortgage term, the first thing to determine is how much you can afford to pay per month while maintaining your emergency fund and saving for retirement. Our mortgage calculators can serve as helpful tools during the mortgage process. 

Consider Your Age and Job Situation 

If you can afford the higher monthly payments that come with a 15-year mortgage loan, you’ll enjoy long-term savings on interest. To determine whether a 15-year mortgage is right for you, next, take a look at your job security. You might qualify for a 15-year mortgage today, but if you lose your job later and can't make the payments, you may not have enough income to qualify for refinancing to take advantage of a 30-year loan's lower monthly bills.

If you are in the 50-something age range, weigh the pros and cons of paying off a mortgage over 15 years vs. taking out a 30-year loan that you will still have to cover during retirement. Having a 15-year home loan could mean knocking out your monthly mortgage payment right around the time you retire, minimizing your overhead in retirement. Choosing a 30-year loan, however, could allow you to put more money into your 401(k) or IRA while you're still working—plus, you may qualify for a mortgage-interest tax deduction.

Consider How Long You Plan to Live in Your Home

Another factor to consider when comparing 15- vs. 30-year mortgages is how long you plan to live in your new home. If you plan to stay in your home for a short period of time—say eight years or less—a 30-year loan might make the most sense. You’ll benefit from lower monthly payments, and you won’t have to pay as much interest because you’ll be selling your home long before your loan’s pay-off date. 

However, if you plan to live in your home for 15 years or more, a 15-year mortgage loan might make more financial sense if you can afford the monthly payments. With a 15-year loan, you may be able to save tens of thousands of dollars in interest.

Choosing a 30-Year Mortgage and Paying Extra 

If you’re still on the fence weighing all of these factors, there is a potential third option: locking into a 30-year mortgage and adding extra money to your monthly payments whenever you can afford to. Before considering this as an option, confirm that your lender will allow you to put these extra payments toward your principal with no prepayment penalties.

With this option, you’ll have to pay the higher interest rate of a 30-year loan, but by paying a bit more whenever possible, you can dramatically shorten your mortgage term without committing to a 15-year loan's higher monthly payments. Find out how soon you can pay off your mortgage by making additional payments with our Prepayment Savings Calculator.

The Police Credit Union is here to help. Our dedicated loan officers in California can walk you through the homebuying process and help you find the best mortgage for you. Remember that current mortgage rates, taxes and fees all factor into this important decision, and the right choice will depend on your personal circumstances. Contact us to learn more or set up an appointment.