Comparing the 15- and 30-year Home Loan Options

With most home loans you have a choice: Pay the lender back all the money borrowed (plus interest) in either 15 or 30 years. While the decision may seem arbitrary to some, those in the know understand that the route you choose can have a big impact on your financial future.

A 15-year home loan will feature a lower interest rate than a 30-year version—which means you’ll pay less interest over the life of the loan. You’ll build equity faster. And, obviously, you’ll be mortgage-free 15 years sooner.

 

However, because the loan must be paid back more quickly, your monthly payments will be significantly higher with a 15-year loan. Plus, these shorter-term loans are more difficult to qualify for (lenders want to be sure you can afford the higher monthly payments).

 

With a 30-year loan, your mortgage payment will be significantly less each month—which will allow you to invest more of your money elsewhere (even pay more than the minimum mortgage requirement each month). However, by extending the payment plan to 30 years, you’ll end up paying thousands of dollars more in interest over the life of the loan.

 

If you’re a savvy investor, the 30-year option will allow you to continue investing in stocks, bonds, treasuries and retirement accounts. On the other hand, if your income is above average, but investing just isn’t your strong suit, a 15-year loan could be just the ticket, providing a forced savings program.