30-Year Mortgage 

The balance shrinks much more slowly over three decades as the homebuyer is borrowing the same amount of money for twice as long as a 15-year loan. For example, if the interest rate is only 4%, the borrower pays nearly 2.2 times more interest to borrow the same amount of principal over 30 years compared to a 15-year loan. Actually, the higher the interest rate, the greater the gap between the two types of mortgages. 

With lower payments, the borrower can buy a more expensive house than they could afford with a 15-year loan, they can build up savings and put money other places. 

Disadvantages of a 30-Year Mortgage 

While being the most common, with 90% of all home loans being 30-year, it does come with its own specific drawbacks. Since the lender’s risk of not getting repaid on their loan is spread out over a longer time, they charge higher interest rates, which add up to a much higher cost compared to a 15-year mortgage. As it takes longer to build equity in a home, the ability to buy a bigger house can make it unaffordable as time goes on, with higher repairs, property tax, upkeep and utility bills. Nerdwallet advises the purchaser should budget between 1% to 2% of the purchase price for upkeep every year, which could add up to $12,000 per year on a $600,000 home. 

15-Year Mortgage 

Usually with a lower interest rate, anywhere from a quarter to a full percentage point, the savings can really add up, as the Federal Housing Administration (FHA) charges higher mortgage insurance premiums to 30-year borrowers. 

Some of the higher fees with a 30-year loan do not exist on a 15-year loan, and when combined with a lower interest rate, it can mean a huge savings over time. Depending on where you live, let’s consider a median U.S. home price of $300,000 with a mortgage at 4% for 30 years or at 3.25% for 15 years. Paying the loan faster with a lower rate, combined with amortization, means that the interest costs for the 15-year loan would be $79,441, while the interest for the 30-year would be $215,609. That boils down to 2/3 less in interest payments. 

Disadvantages of a 15-Year Mortgage 

Monthly principal and interest payments for a 15-year fixed-rate mortgage run about 50% higher than a 30-year home loan, according to Nerdwallet. That doesn’t include property taxes and homeowner’s insurance, plus the potential need for mortgage insurance. With all these fixed costs, this could mean that you have less cash available for emergencies and other priorities. With such a long-term investment, mortgages are a commitment and very difficult to get out of if the payments become (no matter how unavoidably) out of reach.    

Bottom Line 

Deciding between a 15-year and 30-year mortgage is a major life decision, so be sure to weigh the pros and cons and get as much input as possible from people you trust. Basically, if you want to pay off your mortgage sooner and can afford the higher monthly payments, go for the 15-year mortgage. If you need a larger house and funds for other financial goals, then the lower payments of a 30-year mortgage might be a better option. You can also try using this mortgage calculator from Investopedia that considers home price, down payment, loan terms, taxes and other fees to come to a more personalized decision.