Three Reasons Why You Should Choose a 15-Year Mortgage


Some homebuyers choose a 30-year mortgage without giving any thought to the possibility of a 15-year mortgage. Since a 15-year mortgage cuts the loan term in half, many borrowers assume they’re unable to afford the higher payment, so they never run the numbers to see if a shorter term is doable.

There are undeniable benefits of a 30-year mortgage, such as a more affordable payment and the ability to qualify for a larger loan. But there are also good reasons to choose a 15-year mortgage.

1. Build Home Equity Faster

 A 15-year mortgage pays off your mortgage loan in half the time, and since you’re paying off your home faster, you can build equity quicker. Equity is the difference between your home’s value and what you owe your mortgage lender. Even if property values in your area don’t increase much from year to year, your equity value will rise as you pay down the mortgage balance. Also, the faster you build equity, the faster you can get rid of private mortgage insurance (PMI). This insurance compensates your mortgage lender if you default on your mortgage loan, and it’s required if you put down less than 20%. Mortgage lenders cancel PMI once your loan-to-value ratio drops to 78%.

2. Qualify for a Lower Interest Rate

Since you’re financing the home for a shorter length of time, 15-year mortgages typically feature lower mortgage rates than 30-year mortgages. This results in paying less interest over the course of your loan term. You’ll pay more on a monthly basis for the house, but the overall cost of the home will be lower. Understand, however, that a low interest rate isn’t guaranteed with a 15-year mortgage. Other factors also determine your mortgage rate, such as your credit score and the size of your down payment.

3. 15-Year Terms Don’t Double the Mortgage Payment

 Some homebuyers never consider a 15-year mortgage because they believe cutting the loan term in half doubles the mortgage payment. This isn’t the case, however. You can expect a higher monthly payment with a 15-year term, but the payment may only increase by half. For example, a 30-year fixed-rate mortgage for $200,000 at 3.46% has a monthly payment of $1,101.96 (including taxes and PMI). If you were to shorten the mortgage term to 15 years, the monthly payment increases to $1,634. This is a monthly difference of only $533.