15 vs. 30-year mortgage: What’s best for you?
In order to really understand the difference between a 15 vs. 30-year mortgage, it pays to crunch some numbers and see what financial impact each option will have. On Oct. 26, 2020, the average mortgage rate for a 30-year fixed loan was 2.887%. For a 15-year loan, it was 2.415%. That’s quite a difference in interest rate when comparing a 15-year vs. 30-year mortgage loan.
Now, let’s see what that means in terms of a monthly payment. Imagine you’re taking out a $100,000 loan with a 30-year term and an interest rate of 2.887%. (You can use our mortgage calculator to put in your exact principal balance.) Your monthly payment will be $415.80 for principal and interest, but you’ll also pay a total of $49,688.97 in mortgage interest over the life of that loan.
On the other hand, if you take out a $100,000 loan with a 15-year term and an interest rate of 2.415%, your monthly mortgage payment will be $662.65 for principal and interest. That’s a lot higher than your monthly payment with a 30-year loan. But over the life of your loan, you’ll spend just $19,278.05 on mortgage interest — roughly one-third of the interest you’ll pay on a 30-year loan.
Even if we apply the same interest rate to a 15 vs. 30-year mortgage, you’ll see that the numbers work out similarly. We’ve seen what a 2.887% interest rate means for a 30-year loan. If we apply it to a 15-year loan, that monthly payment goes up to $685.40 for principal and interest, and total interest paid climbs to $23,371.76. That’s still a huge difference on both counts.
Therefore, if you’re not sure whether to get a 15-year vs. 30-year mortgage, you may want to ask yourself: How much of a monthly payment can I afford? If you can swing a higher payment without hurting yourself from a cash flow perspective, then a 15-year mortgage will save you a lot of money over time. But if your budget only allows for a lower payment, then a 30-year mortgage is the way to go. Ultimately, choosing between a 15 vs. 30-year mortgage isn’t an easy decision to make as a borrower, so take the time to run the numbers before pulling the trigger.
View more information: https://www.fool.com/the-ascent/mortgages/15-vs-30-year-mortgage/