Reader Question: Should I Get A 15 Or 30 Year Mortgage?

I received this question from Jennifer L. over the weekend “My husband and I are about to start the pre-approval process for a home loan, and I was wondering what you thought of 15 year versus 30 year mortgages. We are considering and will probably qualify for either, but we are not sure which one to go with. Thanks so much!”

Thanks for the question, Jennifer, and congrats on getting started on the home-buying process! It is a great time to buy a home, and I hope you find what you are looking for. As for my thoughts on 15 year versus 30 year mortgages, I definitely have my opinion on the choice. And while I am not a financial planner, and you should definitely seek the advice of a professional before you sign any papers, I can tell you what I think about which one I would choose for myself and why I would choose it.

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Creative Commons License photo credit: TheTruthAboutMortgage.com

If I were getting a mortgage, I would definitely be getting a 30 year fixed-rate one, even if I could pay it off in 15 years. This to me is a no-brainer, as it gives you a lot more flexibility in when and how you pay your mortgage. If you are in good times and you have the ability/desire to pay more on your mortgage, you can – and possibly even pay it off in the 15 years you were considering getting the loan for. But if your priorities change, or you lose a job, or something else happens with your family, your “regular” mortgage payment should be low enough for you to continue making the payments and not lose your home.

Just because you sign up for a 30 year mortgage, it normally doesn’t mean that you cannot pay it off in 15 years. (Be sure to check with your lender to make sure there are no pre-payment penalties) If you can do it, that’s great – and congratulations! But if you cannot, or can only afford to pay a little extra on that 30 year mortgage, that’s fine too, as at least you won’t be stretching and trying to make ends meet every month. Having a payment that is too big for you is just not worth the price of admission of you ask me!

So there you have it – I am all for a 30 year mortgage, even if you think you can afford or pay off a 15 year mortgage instead. Even if you make a very good living, getting the 30 year one gives you two options, the high and/or lower payment, whereas a 15 year mortgage gives you only one – the higher payment. I would go with the 30 year mortgage.

What do you guys think? What would you do? What did you do and why?

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Comments (9)

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  1. Miranda says:

    I think I agree with you. You can make payments to get rid of the mortgage in 15 years, but if something happens, you have the flexibility to drop back on your mortgage payment if you have a 30 year. I suppose you could compromise and go with a 20 year. We’re thinking of refinancing to a 15 year right now, since we could do it and have the payment be about $100 more than what we have right now, since interest rates have dropped so much. But starting out, I’d go with the 30 year.

  2. I tend to agree with you. However, if the couple has a very secure job situation and a large amount of savings in case the job was somehow lost, it might make more sense to get the 15 year mortgage in order to get the better interest rate they usually offer. It would depend on the couple.

  3. Enrique S says:

    We could only afford the payments on a 30 year mortgage when we bought our house. But we always sent extra principal payments, and by doing so, shortened the length of the mortgage by about 10 years. We also saved a ton of interest expense. I’m an advocate of paying it off early.

  4. Austin says:

    My plan would be to only buy a house that we can afford the 15 year loan. You have to have good discipline to stick with those extra mortgage payments when the kids need new shoes and the car breaks down.

  5. Andy Hough says:

    My girlfriend just refinanced her house to a 15 year loan. This got her a much lower interest rate making her payment only about $100 a month more than on the 30 year loan. The rates for 15 year loans are generally lower than on 30 year loans so that should be considered when making a decision.

  6. Gene Meyer says:

    I’d go for the 30-year loan too, for all the reasons others have listed. Also,the difference between average 15- and 30-year mortgages is less than a half percentage point on Bankrate.com this morning. I haven’t crunched the numbers, but suspect that the total interest cost savings from an early payoff would negate that difference.

    Nobody asked, but I think it’s also important to plan to make the final payoff before your next anticipated income change, like retirement. We did and it unexpectedly helped save our tails when I got downsized out of a job. All the best,

  7. Rini says:

    Dave Ramsey says 15 years. Although I’ve never (yet) bought a home, I’m inclined to agree. It’s the psychology.

    Most people won’t really pay off a mortgage in 15 years if they signed a note for 30. Something will “come up” and “force” them to lower their monthly payments. If those same people had signed the 15-year note to start with, they would have found another way to deal with what “comes up”.

    Of course, most people also don’t read personal finance blogs, so your mileage may vary. 😉

  8. Charlene says:

    Buy a house that you can afford a 15 year mortgage on. If you get a 30 year mortgage you will probably pay it off 5-7 years early but “other” things will come up and you won’t pay it off in 15 years.
    We have a 15 year mortgage and it will be paid off in 7 years. Mortgage free at 43!! That’s my motto and my motivation…that and traveling the world after early retirement!

  9. David says:

    Most conventional wisdom seems to be ‘take the 30 year fixed’ and, if you can afford additional payments, pay the loan down. Given that there is still a lot of uncertainty right now, that doesn’t seam like a bad idea. However, depending on the type of loan you are able to get, it might be better to make the minimum payments on the loan.

    For instance, my wife and I just bought our first house (closed in May) and we are planning to live there for between 5-10 years. We had the option of going with a 15 year or a 30 year fixed mortgage. Even though we could afford the payments on the 15 year we chose the 30 year.

    There were two reasons for this, first since we were only planning to live there for 5-10 years, paying either mortgage off was a little bit of a stretch for us. Second, and more importantly, the 30 year mortgage was an assumable mortgage. I’m sure most of the readers know what that is; but, for those who don’t, it basically means that if I sell my house with a balance left in the mortgage, the new owner can ‘assume’ the payments of the previous mortgage.

    For example:

    Say I sell my house, I have paid the mortgage balance down by 20%
    that means that I have 80% of the mortgage to go

    Also, let’s assume that I am able to sell my house for 20% more than I paid

    Because my mortgage is assumable, the family who buys my house from me does not need to take out a loan for the 80% of the original balance; rather, they can continue to make the payments as if they took out the loan. Since, I am 99.9% sure my current interest rate will be lower than any out there when we want to sell, it is better to keep my total balance as high as possible.

    Let’s assume that the house was purchased from me for $200,000 (easy numbers).

    80% of the original price corresponds to about 67% of the new price or $134,000 left of the original loan.

    $200,000 – $134,000 = $66,000

    Even at 20% down, that is only $13,200 for the new owner.

    Obviously, if the mortgage you get is not assumable a bigger balance at sale time is not beneficial, but by understanding the type of loan you have and your plans for the future, it might be in your best interest to NOT pay down a loan as fast as you can.