Pros and cons of a 15-year mortgage

Here we’ll look at both the benefits and drawbacks of a 15-year mortgage so you can see how it might fit into your financial goals.

Pros

• The interest rates are lower.
  

  Historically, interest rates on 15-year mortgages fall below other mortgage options. A quick check of the current mortgage rate table will show you how much you can save by getting a 15-year home loan versus other loan types.

• You’ll make fewer payments (180) than you would with a conventional 30-year mortgage (360).
  

  Since you’ll be making fewer payments, you’ll pay less in overall interest. Even if you got the same rate on a 15-year fixed-rate mortgage as you did on the 30-year fixed-rate mortgage, you would still pay less in interest because your payments would end 15 years sooner.

• You’ll pay off your mortgage faster.
  

  Paying off a mortgage is often a cause for celebration. Not only will you have one less bill to worry about; you’ll own your home free and clear, which can be a mental relief as much as a financial one.

• You'll build equity more quickly.
  

  With a 15-year mortgage, you pay down the principal in half the time you would for a 30-year mortgage, so you accelerate the equity-building process. Equity is the share of the home that you own. For example, if you owe $150,000 on a home that cost you $300,000 and today that home is worth $360,000, you have $210,000 of equity in that house.

Cons

• You'll pay more each month.
  

  If you have a 15-year mortgage, you repay a larger portion of the principal each month than you would if you had a 30-year loan. As a result, you’ll have less room in your monthly budget. The larger monthly payments associated with 15-year mortgages is a common reason why borrowers choose 30-year mortgages instead.

• You’ll qualify for a lower mortgage amount.
  

  Minimizing risk is a major concern for lenders, so to avoid stretching your budget with the monthly payments on a 15-year loan, you’ll likely qualify for less mortgage than you would with a 30-year loan.

• You might sacrifice saving for retirement.
  

  You don’t want to pay down your mortgage so aggressively that you neglect your retirement savings.

Comparing 15-year fixed and 30-year fixed-rate mortgages

While a 15-year mortgage means you’ll pay off your loan faster, the lower monthly payments associated with a 30-year mortgage could allow you to borrow a larger amount, albeit at the expense of a higher interest rate and greater overall cost.

Even if the total amount you’re interested in borrowing would be the same for a 15- or 30-year mortgage, you might have an easier time qualifying for the longer-term loan because of the difference in monthly payments.

15-year vs. 30-year mortgage interest and payments

>>To compare your monthly payments, check out Bankrate's 30-year vs. 15-year mortgage calculator

15-year mortgage FAQs

• What is a 15-year fixed mortgage?

  A 15-year fixed-rate mortgage offers borrowers the same (fixed) interest rate and monthly payments throughout the life of the loan.

  Over the long term, you’ll save significantly with a 15-year mortgage compared to other mortgage options. On the other hand, you’ll have a higher monthly payment than you would on a loan with a longer repayment term, like a traditional 30-year mortgage.

• Who is a 15-year mortgage best for?

  If you don’t mind a higher monthly payment, you might find a 15-year mortgage to be a more attractive option than a longer-term loan. If you’re looking to refinance, it’s smart to consider a 15-year loan, especially if you’re more than halfway through repaying your current 30-year loan. If you refinance into another 30-year loan, you’d extend your repayment period, which costs more in the long run.

  In addition, a 15-year mortgage might be a good option if you want to retire mortgage-free. Locking in the shorter duration of a 15-year mortgage now, especially if you’re in your 40s or 50s, allows you to pay it off in time for when you stop working.

• Why compare 15-year mortgage rates?

  Shopping around can help you save thousands over the life of the loan. Bankrate allows you to compare offers from a variety of lenders.

  >>Read more about how to get the best mortgage rate.

• 15-year mortgage requirements

  There can be more stringent requirements for a 15-year versus a 30-year mortgage. For the former, your lender has to make sure you can afford the larger monthly payments, and usually that means having a higher income and a lower debt-to-income (DTI) ratio. If your DTI ratio is on the higher side, you can work to increase your income or pay down your debt. Some ways you can pay down debt include:

  • Pay down your most expensive balance first.Prioritize paying down debt with the highest interest rate first, such as your credit card bills.
  • Utilize the snowball method.With the snowball method, you pay off your debt starting with the smallest balance and working up to the largest. The idea is that if you wipe out smaller debt quickly, you’ll have more motivation to tackle larger debt.
  • Consider a zero-percent balance transfer card. A zero-percent balance transfer card allows you to transfer your current balance to a new credit card with zero-percent APR, usually for 12 months to 21 months. During this period, you might be able to pay down the debt more easily.

• How are 15-year mortgage rates set?

  Mortgage lenders set 15-year interest rates based on a number of factors, but it ultimately comes down to the individual borrower. The lender will take into account your credit score, income, debt and savings. The better your credit and financials, the better rate you’ll be offered.

  While you can control these qualifying factors, mortgage rates are also influenced by outside forces, including economic conditions and inflation and the lender’s overhead.

  Overall, rates change frequently, so when you get a rate you’re comfortable with, consider a rate lock so you won’t have to worry about it changing before you close on your loan.

• Tax deductions and 15-year fixed mortgage rates

  With a 15-year mortgage, you pay less interest, so you also have less opportunity to take advantage of the mortgage interest deduction.

  There’s a caveat: The mortgage interest deduction no longer is of much use to most homeowners, no matter the length of the loan. The Tax Cuts and Jobs Act, which is in effect from 2018 to 2025, allows most homeowners to deduct all of their mortgage interest payments for the year on home loans up to $750,000, but that deduction won’t do much for you unless you have other deductions to push you above the standard deduction. That’s because the standard deduction rose. For 2022, a married couple filing jointly gets a standard deduction of $25,100. At that level, even a large mortgage with a long term and a relatively higher rate might not generate enough interest to take the tax break.

Refinancing into a 15-year mortgage

If you have a 30-year mortgage and are more than halfway through your loan term, refinancing into a 15-year loan with a lower rate can save you thousands in interest. In general, 15-year mortgages have higher monthly payments due to the shorter term — but, depending on how much lower you can cut your rate and the balance of your current loan, your monthly payment might not increase as much as you think it will, or at all.

Whichever type of refinance you pursue, be sure to shop around for rates and compare offers, including lender fees.

>>Read more about how to refinance your mortgage.