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Should You Take out a 15-Year Mortgage or Take out a 30-Year Loan and Make Extra Payments?

If you’re planning to buy a house, you will have to decide whether to take out a 15- or 30-year loan. A 15-year mortgage will have significantly higher monthly payments, but you’ll pay much less in interest over the life of the loan. If you take out a 30-year mortgage, you may be able to make extra payments, direct them toward principal and pay off the loan early.

Reasons to Choose a 15-Year Mortgage The interest rate on a 15-year home loan will be lower than the rate on a 30-year mortgage. The exact amount of the difference will depend on your financial situation, your lender and economic conditions when you apply for a mortgage.

A 15-year loan will cost you more each month, but you may save tens of thousands of dollars in interest compared to what you would pay with a 30-year mortgage. If your goal is to avoid spending a lot on interest, a 15-year mortgage may be the right choice.

If you’re approaching retirement age and you want to pay off your home loan before then, choosing a 15-year mortgage may be the better option. The higher monthly payments will force you to be disciplined now so you can enjoy financial security when you’re living on a fixed income later.

Taking out a 15-year mortgage will allow you to build home equity much faster than you could if you took out a 30-year mortgage and made lower monthly payments. A shorter loan term will, in effect, force you to save.

Benefits of Choosing a 30-Year Loan and Making Extra Payments With a 30-year mortgage, you will have lower monthly payments. If you can afford to make extra payments, you will have the option to do so at any time, as long as the loan you choose doesn’t have a prepayment penalty.

If you would like to prioritize other financial goals, such as paying off credit card debt and saving for retirement, and then begin putting more money toward your mortgage each month, you will be able to do so. If you lose your job or have an unanticipated expense, you will have relatively low mortgage payments. That can help you avoid tapping into your home equity or using high-interest credit cards. Since life can be unpredictable, you may appreciate having that flexibility.

Which Should You Choose? A 15-year mortgage will have substantially higher monthly payments than a 30-year loan. If you have a steady income and job security, have already set aside substantial savings for emergencies and retirement and don’t have a lot of high-interest debt to pay off, choosing a loan with a shorter term may make sense. If, on the other hand, you haven’t taken care of all your other financial priorities, or if you aren’t confident that you’ll stay at the same job and continue to have a high income, you may be better off opting for a 30-year mortgage. Compare terms for different loan options and look at your entire financial picture.


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