15-year vs. 30-year mortgage: How to decide which is better

Core Insights - The choice of mortgage term significantly impacts the interest rate, monthly payments, and total borrowing costs over the loan's life [1][2][3] Mortgage Term Comparison - Fixed-rate mortgages typically have terms of 15 or 30 years, with shorter terms offering lower rates and less interest paid over the loan's life, but higher monthly payments [2][5] - Longer terms result in lower monthly payments but higher interest rates and total interest costs, which may allow borrowers to qualify for larger loans in high-cost markets [3][4] Cost Differential Analysis - A $400,000 mortgage at 6.25% for 30 years results in a monthly payment of approximately $2,463 and total interest costs of $486,633 [4] - The same loan at 5.5% for 15 years leads to a monthly payment of about $3,268 and total interest paid of $188,300, saving over $298,000 in total interest costs despite a higher monthly payment [5] Refinancing Considerations - Homeowners refinancing a 30-year mortgage may benefit from considering a shorter term to avoid restarting a long repayment period, potentially maintaining similar or lower payments depending on equity built [6] Alternative Mortgage Options - Adjustable-rate mortgages (ARMs) typically have a 30-year term but start with a fixed rate for a set period before adjusting, which can lead to varying payments and total interest costs [8][9] - Some borrowers opt for ARMs due to attractive initial rates, assuming they can refinance before the rate adjusts, though this strategy carries risks if market conditions change [10][11] Extended Mortgage Terms - A 40-year mortgage is not standard but may be offered in specific cases, resulting in lower monthly payments but significantly higher total interest costs and longer time to build equity [12][13] Early Payoff Strategies - Borrowers can pay off their mortgages sooner by making extra payments or adopting a biweekly repayment schedule, which accelerates the payoff process [14][15] - Refinancing into a shorter loan term can also help reduce the overall loan duration and interest paid [15] Frequently Asked Questions - A 15-year mortgage may be preferable for those wanting to pay off their loan quickly, while a 30-year mortgage offers lower monthly payments, especially for those planning to sell within a few years [16] - Paying off a 30-year mortgage in 15 years may not be cheaper than obtaining a 15-year mortgage initially due to higher rates on 30-year loans, but it offers flexibility [17] - Typically, 15-year mortgage rates are about 75 basis points lower than 30-year rates, though this can vary by lender [18]