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Posted on Monday, October 31, 2022 in Mortgage Lending

Is a 15- or 30-year Mortgage Right for You?

That’s a good question because there are both pros and cons to selecting a 15- or 30-year mortgage and everyone’s financial situation is unique. 

There is a lot of talk right now about mortgage interest rates, but if you’re preparing to buy a home, you’ll need to look at more than mortgage interest rates, you also need to consider loan types and terms.

If you can afford the payment on a 15-year mortgage, the long-term interest savings are superior. But the lower monthly payment of a 30-year mortgage could offer you more flexibility if your financial situation changes in the future.

Pros of a 15-year mortgage

There are several advantages to getting a 15-year mortgage.

  • Quicker loan payoff. You’ll pay off your home loan in half the time, compared to a 30-year loan.
  • Lower interest rate. Borrowers typically pay lower interest rates for 15-year loans.
  • Faster equity growth. More of your payment goes toward principal and less toward interest. 

The primary trade-offs of a 15-year mortgage are:

  • A higher monthly payment in comparison to a 30-year mortgage.
  • You may not qualify for the same amount of loan because of the higher monthly payments.
  • With larger payments, you will have less flexibility for reaching other financial goals, like building your emergency savings or even travel.

Advantages of a 30-year mortgage

“The main advantage of a 30-year mortgage is that it stretches out the repayment, making it feel like the house is more affordable,” said Sr. Vice President and Loan Officer Vicky K. Halvorsen. “With a 30-year mortgage you can also pay more toward your mortgage if you’re comfortable; something that would be more difficult to do with a 15-year mortgage.”

Generally, it is easier to qualify for a 30-year mortgage because of its smaller payments. And there is more room in your budget to achieve other financial goals.

Cons of a 30-year mortgage

  • Slower growth in home equity than a 15-year mortgage
  • More total interest paid over the life of the loan
  • A higher interest rate than a 15-year mortgage

How to determine what’s the best mortgage loan for you

Some of the factors to consider are:

  • Your budget and amount of payment you’re comfortable with
  • Amount of money you have set aside for emergencies
  • Age may be a factor; for instance, if you’re retiring in 15 years, you may be more comfortable doing so without a mortgage payment.
  • If you’re a first-time homebuyer, a 30-year mortgage can be a good choice, so you give yourself some more wiggle room in your budget

The best way to look at your holistic financial picture and loan options is to speak to a mortgage lender with First National Bank. There is never a fee to consult a lender and their knowledge about loan products will help you make a decision that perfect for you. 

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