How To Decide – Forbes Advisor

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Mortgages come in all shapes and sizes, from low down-payment options to jumbo loans. Beyond the type of mortgage you choose, you must also decide how long you want to repay the loan, which is called the mortgage term.

There are many different types of mortgages available to help you purchase a home, but the most common ones tend to last 15 or 30 years. If you want lower monthly payments, you may have to extend your home loan to 30 years. A 15-year mortgage may have higher monthly payments but reduces the life of the loan in half, which also cuts down on how much interest you pay.

To determine what type of mortgage works better for you and compare your total costs, simply plug in the total cost of the home, your expected down payment amount and the interest rate below.

15-year loan summary

Monthly payment

Total cost

(principal, interest)

(down payment, principal, interest)

Cost per year (excluding down payment, taxes and insurance)

30-year loan summary

Monthly payment

Total cost

(principal, interest)

(down payment, principal, interest)

Cost per year (excluding down payment, taxes and insurance)

Disclaimer: These calculations are based on estimates and may not be exact depending on your lender and personal credit profile.

What Is a 30-year Mortgage?

When you get a traditional 30-year mortgage, you pay a set principal and interest amount every month divided over a span of 30 years, or until you sell the home and pay off the mortgage sooner.

What Is a 15-year Mortgage?

Similar to the 30-year mortgage, you will have a set monthly payment based on the principal and interest but divided over 15 years.

15-year Vs. 30-year Mortgage: How to Decide

Both a 15-year and 30-year mortgage can have fixed interest rates and fixed monthly payments over the life of the loan. However, a 15-year mortgage means you will have your home paid off in 15 years rather than the full, 30-year mortgage so long as you make the required minimum monthly payments.

The 15-year mortgage tends to have a lower interest rate, though mortgage rates overall have been low for some time. However, the monthly payments are higher on a 15-year mortgage because you are paying the principal off faster than a 30-year mortgage.

Deciding between the two depends on your financial situation, including your credit score and history, your down payment and how much cash reserves you’d like to maintain on a monthly basis.

A 15-year mortgage might be a better fit if you have more monthly cash on hand and want to pay off your home faster, for example. Alternatively, a 30-year mortgage might be better for someone who has a more limited budget or wants to save cash by paying less toward their mortgage but for a longer period of time. A longer-term mortgage also might make more sense if you plan to stay for decades.

The interest rate environment also plays a factor in how long you want to stretch out your mortgage. For example, if rates are low, it might make more sense to lock in that low rate for a longer term and then use your extra monthly cash to invest in something else that has a higher rate of return at the time, like stocks or buying an investment property. Whereas, if interest rates are high, you might want to get a shorter term mortgage so you only pay that interest rate for 15 years rather than 30 years.

There’s also the option to refinance from a 30-year mortgage to a 15-year mortgage down the road if your financial situation changes and you want to pay off your home loan faster or lower your rate.

Mortgage FAQs

How does a mortgage work?

A mortgage is a secured loan that uses the home as collateral for the lender to issue you financing. This means that the lender will have a lien on your home until the mortgage is paid in full. After closing, you’ll make monthly payments—which covers principal, interest, taxes and insurance. If you default on the mortgage, the bank will have the ability to foreclose on the property.

What are the types of mortgages?

There are several common types of mortgages.

These include conventional loans and jumbo mortgages, which are issued by private lenders but have more stringent qualifications because they exceed the maximum loan amounts established by the Federal Housing Finance Administration (FHFA).

Prospective homebuyers also can access mortgages insured by the federal government, including Federal Housing Administration (FHA), US Department of Agriculture (USDA), US Department of Veterans Affairs (VA) and 203(k) loans. Minimum qualifications for these mortgages vary, but they are all intended for low- to mid-income buyers as well as first-time buyers.

In addition to the type of mortgage, borrowers can choose how long they want to repay that mortgage, which is called the mortgage term. Mortgage terms are usually 15- or 30-year terms, meaning you have 15 or 30 years to pay off the loan. For example, let’s say you choose a 15-year FHA mortgage. The type of mortgage is FHA, but the term is 15 years.

Some lenders offer custom loan terms, which allows borrowers to choose a repayment timeline that doesn’t fall into the 15- or 30-year buckets.

How do you apply for a mortgage?

Mortgages are available through traditional banks and credit unions as well as a number of online lenders. To apply for a mortgage, review your credit profile and, if necessary, improve your credit score to qualify for the lowest interest rate possible.

Then, calculate how much home you can afford, including how much of a down payment you can make. When you’re ready to apply, compile necessary documentation like income verification and proof of assets, and start shopping for the best rates.

Studies have shown that borrowers who comparison shop get better rates than those who go with the first lender they find. You’ll want to find out what rates they offer as well as the annual percentage rate (APR)—this is the all-in cost of a loan, including fees. Someers might offer lower interest rates but higher charge fees, which can cancel out the savings.

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