06/28/2022: 15 or 30 Years: Which Mortgage Term Is Best?

If you’ve ever taken out a mortgage on a home or you’re currently considering doing so, you know that there are a variety of mortgage terms to choose from. The most common option is a 30-year mortgage in which you have a monthly payment toward your home over the course of thirty years. Another option is a 15-year mortgage, which allows for the home to be paid off in a much shorter fifteen-year period. With each of these mortgage lengths, you’ll be paying off the same principal amount. The real difference between the two is the time it will take to pay off the home and how much interest you’ll end up paying.

Both of these options have their own sets of benefits and disadvantages, so the decision truly depends on the homebuyer’s financial state and goals. If you’re not sure which mortgage term will serve you best, Hickory Point Bank has the important information you’ll need to choose. And if you’re wondering, where can I get a mortgage loan anyway? You can rest assured that we have mortgage loan options for all kinds of situations, so you can visit our Mortgage Center to find the one that’s perfect for you. For this blog, we’ll be focusing on the options you have for a fixed-rate mortgage (as opposed to an adjustable-rate mortgage), so read on to learn which fixed-rate mortgage term will suit your financial needs.

Why a 15-year mortgage may be best

A 15-year mortgage is best for homebuyers who can afford the higher monthly payments and that have a goal to own their home sooner. Since it is a much shorter term to pay off the home, your mortgage lendercarries overall less risk and therefore they reward you with a lower interest rate. So, if you have enough each month to pay more than the average 30-year mortgage, it may be in your best interest to select a 15-year mortgage. You’ll end up paying less interest and therefore the total cost of the loan will be less over the total loan period. Since you pay more each payment with a 15-year mortgage, you’ll also build equity in your home much faster than the alternative.

For example, if you have a small family or your children are already out of the house, you may be able to devote more money to your mortgage payment. If you’re financially comfortable enough for a bigger payment, a 15-year mortgage may be the best option for you. Especially if you want to be free of debt and own your home sooner.

Why a 30-year mortgage may be best

A 30-year mortgage is best for homebuyers who value having a lower monthly payment and may have financial constraints that prevent them from owning their home sooner. The interest rate on this term will be higher, so you’ll be paying more over the life of the loan. Ultimately, if a smaller monthly payment is more affordable and allows you to build up more savings, a 30-year mortgage will be worth it. After all, it’s better to be able to comfortably afford your monthly mortgage payment than to drain your account each month and not have much financial wiggle room.

For example, if you have several children, you have many costs that factor into your life. Food, clothing, school, are just a few of them. A 30-year mortgage may suit your needs best since you’ll have a relatively smaller monthly house payment, which will give you more room to spend on things your children need, plus save money for their college funds.

15-year vs 30-year mortgage breakdown

15-year mortgage

30-year mortgage

Higher monthly payment for a shorter term Lower monthly payment for a longer term
Lower interest rate Higher interest rate
Less interest paid over the term More interest paid over the term
Home will be paid off sooner Home will be paid off later
You’ll pay less overall You’ll have more room to build savings and work towards other financial goals

How to get the best of both options

If you’re still not sure which term will work best for you, and you wish you could have the best of both mortgage worlds, there may be another option. So maybe you already have a 30-year mortgage or you’re heavily considering one. If the only setback is that you wish you could pay off your home a little sooner, this strategy may work for you. Making extra payments on your 30-year mortgage will allow you the flexibility to pay more when you want to, but you won’t be responsible for paying the higher payments of a 15-year mortgage every single month.

This works especially well for those who get paid twice per month, so the homebuyer can get into the routine of making a payment toward the home each time they are paid. Or you can just stick to making your minimum payment each month and make an extra payment here and there when you can, for instance, if you receive a work bonus and want to put that towards accomplishing your financial goals. If the 30-year mortgage seems like the best financial choice for you, there are things you can do to speed up the process and pay off your home even sooner.

Helpful tools for the decision

In addition to the basic information about mortgage options, there are other tools to help you make sure you’re making the right decision. Hickory Point Bank has several mortgage loan calculators on the Lending Calculators page. Scroll to the “Mortgage Calculators” section to discover ten useful mortgage loan calculators.

The ideal tool for deciding on a mortgage term will be the mortgage comparison calculator, which will give you a comparison of a 15-year and 30-year mortgage. All you need to do is input the details: mortgage amount, tax rate, interest rate for the 15-year option, and interest rate for the 30-year option. It will calculate your projected monthly payment for each term length, and this should give you a better idea of which term will work best for you. Being able to look at and compare the numbers is always helpful in a financial decision like this, especially in today’s current environment with frequent interest rate changes.

Choosing the right mortgage term may be daunting at first, but we hope you’ve found this information to be helpful. At Hickory Point Bank, our goal is to provide our customers with the best service, including the right resources for major life decisions like purchasing a home. If you need anything, our experienced Mortgage Team would love to meet you and walk you through the process. We want to set you up for success in any way we can. When you invest in us, we invest in you.

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