With all the various decisions that come with a home purchase, one of the most important is deciding between a 15-year mortgage and a 30-year mortgage. Both options have their benefits and drawbacks, so there’s no across-the-board “correct” answer. Besides, every home buying scenario is unique, so your rate will be unique to you as well. Weighing the pros and cons of both options is a great first step for finding the loan that’s best for you. For instance, let’s assume the 15-year rate for a loan is 4.0% and the 30-year rate is 4.5% and see how both affect a home-buying scenario.
Pros of a 15-Year Loan
15-year mortgages typically have lower rates — often anywhere from 0.25 to 0.5 percent lower than a 30-year mortgage rate. This means you’ll have substantial savings over the life of the loan. For example, a $200,000 loan with the above rates would
Cons of 15-Year Loan
Traditionally, the monthly payments on a 15-year loan are 30-40% higher than on a 30-year loan. Using our example above, a borrower’s monthly payment would be $1,474 on a 15-year versus $1,009 on a 30-year loan. The borrower is obligated to
Pros of a 30-Year Loan
The most obvious reason to choose a 30-year mortgage is
Cons of the 30-Year Loan
Because of the longer term of the loan, the interest rate will be higher hence borrowers pay more interest over time.
Another downfall to choosing the 30-year loan is that equity builds up
Choosing Your Loan
It’s important to note that anyone contemplating a 15-year loan over a 30-year loan can voluntarily pay the 30-year on a 15-year schedule. In fact, in the example above, paying $1,474 voluntarily on the 30-year fixed mortgage will pay off the loan in 15 years and 9 months, while retaining the ability to make the $1,009 monthly payment should any unforeseen circumstances arise.
Typically, the only time a borrower should choose a 15-year loan is if they are 8 to 10 years into a 30-year fixed-rate mortgage and can refinance into a 15-year at
Rick Maines (NMLS: 457598) is the Inside Sales Manager for AAFMAA Mortgage Services LLC. He works in helping military families achieve the American dream of homeownership. Rick understands the military community, having grown up in Arlington, Virginia, with an Air Force Veteran father. After attending the University of Virginia, Rick commissioned into the United States Army and served from 1986-1989. After his military experience, he began his career in the Real Estate Industry as a Relator and Residential Real Estate Appraiser. In 2001, Rick shifted his career to focus on Residential Loan Originating. He continues to offer quality service to his clients and loves being a part of their home-ownership journey.
Rick currently lives in Fayetteville, North Carolina, with his wife, Melanie and their four children (Eric, Ross, Melanie