15 vs. 30-Year Mortgage: Which Fixed Rate Mortgage is Best For Me?

15 or 30-Year Mortgage? It’s All About the Monthly Payment.

One of the biggest decisions you have to make as a first time homebuyer comes when shopping for a home mortgage loan—namely whether to go with a 15-year or 30-year mortgage. While it may seem trivial, the difference between these two fixed rate mortgages is hugely important to your future as a homeowner.

Comparing a 15 vs. 30-year mortgage is heavily dependent upon what you consider to be realistic and affordable for both your current and future financial needs. A good way to approach this common homebuyer’s conundrum is to break down the facts of both mortgage types and then decide what makes the most sense for you and your family.

Luckily, our professional brokers at Blue Water Mortgage have plenty of experience when it comes to fixed rate mortgages like these.

What to know about the fixed rate mortgage

The first thing to know about these types of fixed rate mortgage loans is that they maintain a fixed interest rate for the entire life of the loan—so a 30-year mortgage will follow the same interest rate for all 30 years and the same goes for a 15-year mortgage.

Homeowners like these types of mortgage terms because they offer predictable payments, and are ideal for buyers that intend to be in their home for a long time. While they come in varieties based on the loan period: a 15 or 30-year mortgage is among the most common.

Overall the biggest difference of a 15-year vs. 30-year mortgage is the monthly payment.

The 15-year mortgage

A 15-year loan comes with higher monthly payments, however you will end up paying less interest over the long haul. These loans are great for homebuyers who are looking into the future and hope to spend the least amount of money overall. A lot of homebuyers choose 15-year mortgage loans because it means they can avoid paying mortgage payments during their retirement years.

However, according to this assessment from Realtor.com, taking a 15-year mortgage loan and the higher monthly payments that come with it means you’ll have to give up some things and won’t have as much wiggle room as you would with a 30-year mortgage.

Also, think of it this way; the faster you pay off your home, the quicker you build equity. This then enables you to do the following:

• Obtain a home equity line of credit
• Refinance your home
• Take out a home improvement loan
• Get a second mortgage

The 30-year mortgage

A 30-year mortgage generally has lower monthly payments, but due to the accumulation of interest over the period of the loan, you may end up paying significantly more for the house in the long run.

Frank Nothaft, chief economist with Freddie Mac, said in a recent assessment that there are three reasons why the 30-year mortgage is so popular. They include:

Affordability—Affordable because the principal of the loan is amortized over a longer time period. Your monthly mortgage payments will be much easier to swallow than a 15-year mortgage.

Stability—Stable because a 30-year fixed rate mortgage means a monthly principal and interest payment that is predictable to homeowners—thereby allowing them to feel secure that their home is protected against future economic factors.

Flexibility—Flexible because there’s nothing stopping you from getting ahead on your payments if you so choose. A 30-year fixed-rate loan is generally pre-payable at any time without penalty.

At the end of the day, comparing a 15-year vs. 30-year mortgage should be about your fiscal attitude and whether you feel secure in your financial situation.

Blue Water Mortgage has developed a 15-year vs. 30-year mortgage calculator that can help you get a good idea of what to expect from each type of fixed rate mortgage. The calculator helps compare the monthly payment, total payments and total interest of both mortgage types.

Feel free to contact one of our professional mortgage brokers for any further questions regarding the benefits of fixed rate mortgages. We’re always here to help.

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.