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How to Choose Between a 15- and 30-Year Mortgage - Quicken Loans Zing Blog

iPhone or Android? Coke or Pepsi? Chocolate or vanilla?

Some choices are tough. Choosing between a 15-year and 30-year fixed-rate mortgage doesn’t have to be.

Just like you might prefer the taste of chocolate over vanilla, there are some aspects of each mortgage that may appeal to you given your current financial situation and your plans for the future.

When choosing between a 15-year and 30-year mortgage, the decision depends largely on how much you’re willing to put toward your monthly payment.

A 15-year loan has a higher monthly payment, but you pay less in interest in the long run. In contrast, a 30-year loan has a lower monthly payment, but you pay significantly more in interest over the life of the loan.

30-Year Fixed

A 30-year fixed-rate mortgage is often a good option for those looking for a steady, affordable monthly payment that remains consistent throughout the life of the loan.

This is ideal for those who plan to stay in their home for many years. If you don’t plan on moving in the future, this low and predictable payment is a good choice.

The 30-year fixed consists of 360 payments on the loan over a 30-year timeframe, with lower monthly payments compared to a 15-year fixed. If there’s a question about whether or not you can make the higher monthly payment, a 30-year fixed mortgage might be a better plan, financially, than the larger 15-year monthly payments.

However, the longer the term, the higher the rate. With a 30-year fixed, even though you’re getting a lower monthly payment compared to a 15-year mortgage, you’ll pay more in interest long-term because there’s more time for interest to accrue.

The affordable payments allow for easier budgeting and cash control. You even have the flexibility to pay more toward your principal each month to pay off your loan sooner should you choose to do so.

Let’s review:

  • Lower monthly payment
  • Easier budgeting and cash control
  • Potentially ideal if you’re planning to stay in the home for many years

15-Year Fixed

A 15-year fixed-rate mortgage is likely ideal for those looking to pay off their loan faster, pay less money for their home overall and build equity on their home at a faster rate.

The shorter payment timeframe allows you to plan ahead for possible future financial events. If you plan on retiring soon or have children who are likely have college expenses, this may be the mortgage for you. Having the burden of monthly mortgage payments out of the way sooner rather than later can open up your finances for other expenses.

The 15-year fixed allows you to own your home in half the time it takes to pay off a 30-year mortgage. This shorter timeframe means higher monthly payments but a lot less interest compared to a 30-year. In fact, most people who take on a 15-year can save thousands in interest.

Because the monthly payments are higher, if you’re purchasing a home, you may not be able to afford as much house as you would with a 30-year loan.

Let’s review:

  • Lower interest rate
  • Allows you to build equity quickly
  • Potentially ideal if you’re anticipating and planning for future expenses

What’s Your Flavor?

Here’s one last thought: On a $100,000 loan with a 4% interest rate, clients with a 15-year term will pay nearly $39,000 less in interest over the life of the loan compared to a 30-year term. However, their principal and interest payments will be roughly $260 more per month; that’s $740 compared to $480. It all depends on what works best in your budget.

If you think you need something in between the two most common terms for loans, Quicken Loans even offers the YOURgage, a personalized home loan experience. You can customize your mortgage term by choosing anywhere from eight to 30 years, which provides flexibility for your unique needs and financial goals.

Determine the mortgage option that’s right for you by talking to a Home Loan Expert today. If you’d prefer to get started over the phone, you can call (800) 785-4788.

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