Why is a 15-year mortgage better than a 30-year one?
A 15-year mortgage costs less in the long run since the total interest payments are less than a 30-year mortgage. The cost of a mortgage is calculated based on an annual interest rate, and since you're borrowing the money for half as long, the total interest paid will likely be half of what you'd pay over 30 years.
It is just like a traditional 30-year loan, except that its monthly payment is higher, its interest rate typically is slightly lower, and it is paid off in 15 years. The 15-year mortgage saves the borrower thousands of dollars in interest payments. dramatic savings from the 15-year plan.
Choosing a long-term mortgage means your monthly payment will be lower because you have more time to pay off the principal. Generally, 15-year terms offer the lowest rates, but if you choose a longer term you still have the option of paying your mortgage off early without penalty.
They have lower interest rates than most mortgage loans.
The longer the term, the higher the risk that the loan won't be repaid. Dave Ramsey recommends one mortgage company. This one! With a 15-year mortgage, you can usually get an interest rate between 0.25% to 1% lower than with a 30-year mortgage.
A 15-year mortgage means larger monthly payments, but a lower rate and substantial savings on interest. A 30-year mortgage gives you a more affordable monthly payment, but expect higher borrowing costs overall.
The primary benefit of a 15-year mortgage is the long-term savings. In our example above, you'd save more than a quarter of a million dollars by choosing the shorter loan term. Tip: When shopping for a new home, use a 15-year vs. 30-year mortgage calculator to compare the two terms.
Pros of a 15-year mortgage include paying less in interest over the life of the loan as a result of a lower rate and shorter term, and paying off your mortgage sooner. On the downside, the monthly payments on a 15-year mortgage will be higher due to the shorter repayment schedule.
Generally, a 15-year mortgage means higher monthly payments. This means you'll be able to pay the loan off faster and pay less interest over the life of the loan. A 30-year mortgage generally offers lower monthly payments. With this option, the total amount you pay over the life of the loan will usually be higher.
Choosing a 25-year term will be cheaper in the long run, but make sure you can afford the higher monthly payments. If a shorter term makes repayments too expensive, consider the longer 30-year term.
The Bottom Line
If your aim is to pay off the mortgage sooner and you can afford higher monthly payments, a 15-year loan might be a better choice. The lower monthly payment of a 30-year loan, on the other hand, may allow you to buy more house or free up funds for other financial goals.
Is 50 too old for a 30-year mortgage?
If you can demonstrate an ability to repay the loan before you're 75 years old, they will consider your application no matter your age! For example, if you needed to borrow $300,000 and were 50 years old, the standard 30-year mortgage term could be reduced to 25 years and your loan would be approved.
Because a 30-year mortgage has a longer term, your monthly payments will be lower and your interest rate on the loan will be higher. So, over a 30-year term you'll pay less money each month, but you'll also make payments for twice as long and give the bank thousands more in interest.
15-year mortgage is more attractive to homeowners because it gives the homeowners a shorter period (maturity) to pay back the principle and the with lower interest.
Pros of a 30-Year Fixed Mortgage
Low monthly payments: Assuming identical principle balances, a 30-year fixed-rate mortgage offers the lowest monthly payment among traditional fixed-rate loans.
If you have a strong credit score and can afford to make a sizable down payment, a conventional mortgage is the best pick. The 30-year, fixed-rate option is the most popular choice for homebuyers. Compare conventional loan rates.
A: Dave Ramsey recommends a 15-year, fixed-rate conventional loan.
For example, if you have a 30-year mortgage, the midpoint would be after 15 years. If you have a 15-year loan, the halfway point is 7.5 years. The PMI payments must stop even if your mortgage balance hasn't yet reached 78 percent of the home's original value.
It will cost about 10–20% more to pay off a 30 year mortgage in 15 years than to take a 15 year mortgage and pay it off in that time. Generally, that's how much higher mortgage interest rates are on 30-year versus 15-year mortgages, about 10–20% higher.
If you originally got a 15-year mortgage but find the payments challenging, refinancing to a 30-year loan can lower your payments by as much as several hundred dollars each month. Conversely, if you have a 30-year mortgage, a 15-year term can help you build equity much faster.
- Pay extra each month.
- Bi-weekly payments instead of monthly payments.
- Making one additional monthly payment each year.
- Refinance with a shorter-term mortgage.
- Recast your mortgage.
- Loan modification.
- Pay off other debts.
- Downsize.
How much interest will I pay on 15 year mortgage?
| Mortgage type | Average rates | Required down payment |
|---|---|---|
| 15-year fixed | 2.860% | At least 3% of the purchase price |
| 30-year fixed | 3.41% | As low as 0% of the purchase price for some loan types |
A 15% APR is good for credit cards and personal loans, as it's cheaper than average. On the other hand, a 15% APR is not good for mortgages, student loans, or auto loans, as it's far higher than what most borrowers should expect to pay. A 15% APR is good for a credit card. The average APR on a credit card is 22.89%.
A credit score of 700 and a debt-to-income ratio of around 36% are usually required to secure a 15-year loan.
The average mortgage term is 30 years, but that doesn't mean you have to get a 30-year loan – or take 30 years to pay it off. While it offers a relatively low monthly payment, you'll likely pay the most in total interest if you keep the loan for 30 years.
Each lender has its own method for analyzing a borrower's creditworthiness. Most lenders use the five Cs—character, capacity, capital, collateral, and conditions—when analyzing individual or business credit applications.
