15 Year vs 30 Year Mortgage: How to Choose the Right Loan Term

When I sit down with a buyer, the 15 year vs 30 year mortgage question comes up early. It sounds like a math problem, and part of it is. But it's really a question about how you want to live with your loan: a bigger payment that ends sooner, or a smaller payment with more room to breathe. Here's how I walk people through it.

The loan term is simply how long you have to repay the loan. The Consumer Financial Protection Bureau (CFPB) lists common terms of 15, 20 or 30 years. With a fixed-rate mortgage, the interest rate is set when you take out the loan and doesn't change during the term. The 30-year fixed mortgage is the one most people picture first, and the 15-year version is the same kind of loan on a shorter clock.

Your payment on either loan is amortized, which the CFPB describes as paying off a loan with regular payments over time so the amount you owe goes down with each payment. Early in a loan, more of each payment goes to interest. Later, more goes to principal.

Is a 15-year mortgage always cheaper than a 30-year mortgage?

Over the full life of the loan, the CFPB says shorter terms typically cost less in total. But the monthly payment is higher, and which loan is better for you depends on your budget, your reserves, and how long you plan to keep the loan.

Can I pay off a 30-year mortgage in 15 years?

Often, yes, if you make extra principal payments and your loan allows it. The CFPB says prepayment penalties do not normally apply to small extra principal payments, but you should confirm with your lender and ask for any prepayment terms to be explained before you sign.

Do 15-year and 30-year loans have different closing costs?

I can't give you a general answer, because costs depend on the loan amount, the lender, and your file. Compare the Loan Estimate for each term. It shows your loan costs in a standard format so you can line the two up.

Which is better for a first-time buyer?

It depends on the person. Many first-time buyers value the lower required payment of a longer term because they also have moving costs, repairs and a new budget to figure out. Others have strong income and savings and want the lower total cost. I'd rather look at your numbers than guess.