Compare 15 Year & 30 Year Mortgages
Unsure if you should choose a 15 or 30 year home loan? Use this calculator to compare your monthly payments and total interest expense. A shorter loan term typically comes with a lower interest rate & far less total interest paid, but you have to ensure you'll be able to afford the higher monthly payments.
For your convenience current San Diego mortgage rates are shown beneath the calculator.
Current San Diego 30-YR Fixed Mortgage Rates
The following table highlights current San Diego mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.
Comparing Mortgage Terms: 30-year Fixed vs. 15-year Fixed-rate Loans
When it comes to homebuying, you’ll need ample time to search for the right home loan that suits your needs. It’s important to know how much home you can afford, and gather enough down payment to secure the sale. You must also have a good credit score and financial background to qualify for a loan. Once you shop for mortgages, you must compare different lenders, types of loan products, rates, and loan terms.
In assessing your loan options, you want to obtain a mortgage that’s a good fit for your present financial situation. At the same time, you’ll need a loan that’s financially manageable as your mortgage matures. In choosing the right mortgage, you must consider the right loan term to maximize your savings.
Our guide focuses on comparing the advantages of 30-year fixed-rate mortgages and 15-year fixed-rate terms. We’ll also walk you through the drawbacks of each loan option, and strategies homebuyers employ to manage monthly mortgage payments. By understanding your options, we hope to help you make better, more balanced financial decisions when you apply for a home loan.
Mortgage Terms in the U.S. Housing Market
A loan term is the time it takes a borrower to pay off their mortgage with regular payments. This is the payment duration you and your lender agree upon when you take a mortgage. Your chosen term has a significant impact on your loan’s interest rate, monthly payments, and overall interest charges. In the U.S., loan terms come in various lengths, which are commonly taken as 30 or 15-year fixed-rate mortgages.
Most homebuyers in America, especially those purchasing for the first time, usually choose 30-year fixed rate mortgages. It remains the bedrock of the U.S. home financing industry because it comes with more affordable monthly payments than short terms. Fixed-rate mortgages are the most widely purchased loan product in the housing market, comprising around 90% of the market share.
Fixed-rate mortgages (FRM) come with a locked interest rate for the entire term. This is a unique feature in U.S. mortgages, making it advantageous for many borrowers. The fixed rate ensures your monthly principal and interest payments stay the same, even if general market rates increase. Despite future inflation, your monthly payments will remain predictable and stay within an affordable range.
In contrast, other countries such as the U.K. and Canada only have fixed-rate mortgages that last for an initial period, which is usually for 5 years. After the initial fixed-rate term, homeowners must refinance into another fixed-rate loan, or their mortgage will revert to an adjustable-rate mortgage (ARM).
As of December 2020, the Urban Institute reported that 77.8% of all new loan originations were 30-year fixed-rate mortgages (FRM). See the table below.
|Mortgage Product||Market Share, December 2020|
|Other (10 & 20-year fixed terms, etc.)||7.7%|
Following the 30-year FRM is the 15-year fixed-rate mortgage. In December 2020, 15-year FRMs accounted for 13.8% of new loan originations, which were mostly refinances. While it’s available as a home purchasing product, 15-year FRMs are twice more popular among refinancing homeowners. Mortgage refinancing allows you to reduce your current rate and shorten your term by replacing it with a new mortgage. With a 15-year FRM, you can pay your mortgage a lot earlier compared to a 30-year FRM. But as a trade-off, expect to make much higher monthly payments with a 15-year term.
In December 2019, new originations for 15-year FRMs were only at 10.7%. The increase to 13.8% in December 2020 was attributed to the refinancing boom prompted by record low interest rates. Due to the COVID-19 crisis that affected the world in 2020, the Federal Reserve intervened to keep benchmark interest rates near zero. This helped stimulate market activity when markets fell into recession.
Besides 30-year and 15-year FRMs, there are other available loan terms in the housing market. If you want an extended term that’s not as long as a 30-year option, you can opt for 25 or 20-year FRMs. Meanwhile, if you want a short payment term, or refinance to a shorter loan, you can choose a 10-year FRM. However, these are less common in the housing market. In December 2020, the Urban Institute reported that only 7.7% of all new home loan originations accounted for these other types of mortgages.
Adjustable-rate mortgages (ARM) comprise a small fraction of the housing market. In December 2020, ARMs only made up 0.7% of new loan originations, according to the Urban Institute. Adjustable-rate loans typically come with a full 30-year term. In a growing economy, ARM rates usually start with a lower rate than 30-year FRMs. But when benchmark rates are low, such as in 2020, initial rates for ARMs are higher than 30-year FRMS. ARMs are available as hybrid loans with fixed rates during the introductory period of the mortgage.
Common hybrid ARMS are 5/1, 7/1, and 10/1 terms. For example, if you take a 5/1 ARM, your rate stays fixed for the first 5 years of the loan. Once the initial period ends, your rate resets annually for the remaining term. ARM rates are based on a fixed margin above a floating reference rate like LIBOR. And when ARM rates reset, expect your monthly payments to change. Increasing rates means you must prepare for more expensive payments. Compared to FRMs, ARMs are not as popular because of the unpredictable payments.
Mortgage rates change over time and vary per location. This depends on the state of the national and local economy. The following table shows average mortgage rates as of March 29, 2021 across various home loans with different terms. It includes the initial monthly principal and interest payments (P&I) based on a $240,000 mortgage on a home valued at $300,000.
|Loan Type||Term||Initial Rate||APR||Initial Monthly P&I Payment||Rate Status|
|30-year Fixed||30 years||3.22%||3.39%||$1,063||Fixed for entire loan duration|
|20-year Fixed||20 years||3.06%||3.23%||$1,359||Fixed for entire loan duration|
|15-year Fixed||15 years||2.47%||2.72%||$1,625||Fixed for entire loan duration|
|10-year Fixed||10 years||2.37%||2.58%||$2,271||Fixed for entire loan duration|
|10/1 ARM||30 years||3.30%||3.87%||$1,127.88||Adjusts after 10th year|
|7/1 ARM||30 years||3.14%||3.77%||$1,114.20||Adjusts after 7th year|
|5/1 ARM||30 years||3.11%||3.92%||$1,134.76||Adjusts after 5th year|
|3/1 ARM||30 years||2.14%||2.76%||$981.05||Adjusts after 3rd year|
|1 year ARM||30 years||1.99%||2.64%||$965.85||Adjusts after 1st year|
The mortgage term you choose has a significant effect on your loan’s interest rate, monthly payment, and overall interest expenses. Let’s discuss how these factors are impacted based on your chosen term.
Term Length Determines Your Loan’s Interest Rate
Based on the above table, you’ll notice that the 30-year FRM has a higher rate than the 15-year FRM. In fact, 30-year FRMs have the highest rates compared to shorter terms. In our example, the 30-year FRM has an APR of 3.39%, while the 15-year FRM has a lower APR at 2.72%. In general, 30-year FRMs have higher rates by around 0.25% to 1% than 15-year FRMs.
Why do 30-year FRMs have higher rates? Longer terms carry greater risk for lenders. As time increases, so too will the cost of borrowing. While the loan’s rate remains the same, inflation increases over a longer period. And when the dollar value of money decreases, lenders earn less. To counteract this risk, they assign much higher interest rates to extended terms.
A longer term means making more monthly payments. With a 30-year FRM, payments are spread across 360 payments over a 30-year period. In contrast, a 15-year FRM only requires 180 payments spread throughout 15 years. Because 30-year FRMs take longer to pay off, it generates more expensive lifetime interest costs.
Most younger borrowers opt for the 30-year FRM. This loan tends to offer them the most reasonable rates over time, despite the duration of payments to make. The longer term also results in more affordable monthly payments. It’s the most common form of financing first-time homebuyers use to secure their homes.
Why do borrowers choose 15-year FRMs? In many cases, individuals look to a 15-year mortgage to become debt-free faster. This may be because they are older and more financially secure. Some young borrowers may also afford the higher monthly payments on a 15-year FRM.
A shorter term such as a 15-year FRM exacts lower risk on lenders. And since it takes half the time to pay your loan, it generates much lower interest charges. The sooner you pay your loan, the less your lender has to worry about future inflation.
Choosing a 15-year FRM helps you build home equity faster. You can leverage on home equity when you need to make home improvements or pay for other important expenses in the future. If your goal is to pay your mortgage early, you may choose a 15-year FRM, or eventually refinance into a 15-year loan to shorten your term.
Obtaining a Favorable Rate
Besides comparing lenders and rates, improving your credit score will help you secure a lower interest rate. Whether you decide on a 30-year or 15-year FRM, having a higher credit score makes you qualify for more competitive offers.
Make sure to check your credit report before applying for a mortgage. Borrowers can get a free copy of their credit report every 12 months. You can request a free copy at AnnualCreditReport.com.
The Impact on Monthly Mortgage Payments
Generally, a 30-year FRM will have a cheaper monthly payment compared to a 15-year FRM of the same loan amount. When more payments are spread across a longer period, this results in smaller monthly payments. In contrast, when you choose a 15-year FRM, fewer payments are distributed across a shorter duration, which results in higher monthly payments.
To understand how this works, let’s review the following example. Suppose the home’s market value is $300,000 and you made a 20% down payment of $60,000 to secure the loan. Based on a $240,000 mortgage, let’s compare your monthly payment and total interest charges. The 30-year FRM has an APR of 3.39%, while the 15-year FRM comes with an APR of 2.72%.
Loan Amount: $240,000
|Loan Details||15-year FRM||30-year FRM|
|Interest rate (APR)||2.72%||3.39%|
|Monthly P&I payment||$1,625||$1,063|
|Annual payment amount||$19,500||$12,276|
|Total interest charges||$52,548||$142,689|
According to the example, the monthly payment for the 30-year FRM is cheaper by $562 than the 15-year FRM. You’ll pay $7,224 less on mortgage payments annually if you choose the 30-year FRM. However, this does not mean you’re saving more. Because a 30-year FRM is twice as long as a 15-year FRM, you actually pay more expensive interest costs. But with a 15-year FRM, you’ll pay your loan sooner and build home equity faster.
How do loan terms affect interest costs? Based on the table, the 30-year FRM generates a total of $142,689 in overall interest charges. Meanwhile, choosing a 15-year FRM only generates $52,548 in interest costs. If you chose the 15-year FRM, you’ll save $90,141 in total interest expenses.
In pure terms of cost, the 15-year mortgage is a much better option. Quicker payoffs garner better terms. This is usually lower by a quarter of a percent to a full percentage compared to a 30-year FRM. While both 30 and 15-year options offer fixed rates, the rates are also competitive with other mortgage products, such as FHA loans or VA loans.
Things to Consider Before Taking a 15-year FRM
Different factors such as your job security, income flow, and the size of your income will definitely influence your decision-making. So before you take a 15-year term, consider your job’s stability. It’s also important to think about the economic climate and how it may change in the future. While you may afford to make payments now, ask yourself if you can you sustain payments until the loan’s maturity.
Where you are in your job cycle and life trajectory will definitely determine which option suits you. If you are worried about making expensive payments, then a 30-year option should work for you. Even if you have a 30-year FRM, you can elect to make extra payments to reduce your term. In other cases, some borrowers eventually refinance into a shorter term to save on interest and pay their mortgage sooner.
The following table summarizes the benefits and disadvantages of 30-year FRMs and 15-year FRMs.
|Impact||30-year FRMs||15-year FRMs|
|Pros||Provides affordable monthly payments. |
Monthly P&I payment stays the same for the entire life of the loan.
It’s easier to qualify for a 30-year FRM than a shorter term.
The longer term makes you eligible for a larger loan amount.
A larger loan allows you to buy a bigger home.
|Monthly P&I payment stays the same for the entire life of the loan. |
Lower interest rate than 30-year FRMs, usually 0.25% to 1% lower.
Generates less costly total interest charges.
Pays your loan faster (before retirement).
Builds home equity more quickly.
Early repayment frees up your cash flow to save for other important costs.
|Cons||Has higher interest rates than 15-year FRMs.|
Generates expensive total interest charges.
Takes a lot longer to pay off your loan.
Builds home equity a lot slower.
|More expensive monthly payments than a 30-year FRM. |
You may not qualify for a larger loan amount.
Making high monthly payments limits your purchasing power.
Can keep you from investing in other profitable ventures.
You’ll have less money going to savings such as emergency and retirement funds while paying your loan.
Strategies Borrowers Take Upon Choosing a 30-year Term
Borrowers commonly employ one of two strategies when they decide between a short or long-term mortgage. If a 30-year option is more viable, they may choose to make extra payments to significantly pay down their principal. In effect, this also reduces their loan term by a couple of years and lowers total interest expenses. The other option is to refinance into a shorter term after a couple of years, which is usually a 15-year FRM. In both strategies, always be careful of prepayment penalties.
Watch Out for Prepayment Penalty
Prepayment penalty is a fee required by lenders to discourage homeowners from selling, prepaying, and refinancing their home early. It’s an added cost that’s around 1% to 2% of your loan amount, which can cancel any savings from refinancing or extra payments. To avoid this expensive charge, you can make extra payments or refinance after the prepayment penalty period has ended.
In recent years, prepayment penalties only last for the first three years of a mortgage. But prior to 2014, prepayment penalties could last for over a 5 years, with some even as long as the entire loan. The Consumer Financial Protection Bureau (CFPB) set rules to keep scrupulous lenders from requiring prepayment penalties too long. Borrowers may obtain conventional loans without prepayment penalties. Government-backed loans also do not require prepayment penalties.
Making Extra Payments
Not everyone can afford expensive monthly payments with a 15-year FRM. But the good news is, it’s still possible to reduce your loan term by making additional payments. You can do this by adding an extra amount on top of your monthly mortgage. The amount is flexible, so you can decide how much you can contribute whenever you have extra cash. In other cases, you may elect to make biweekly payments, which is equivalent to 13 whole payments instead of the usual 12 monthly payments a year.
Here’s how paying extra on your mortgage works. Suppose you have a house valued at $300,000 and you made a 20% down payment of $60,000. You took a $240,000 mortgage on a 30-year FRM at 3.5% APR. The following table shows how much you’ll save on time and money if you made extra payments by the third year of your loan.
House Price: $300,000
Down Payment: $60,000
Loan Amount: $240,000
Interest Rate (APR) 3.5%
|Loan Details||Original Payment||Extra $50 per month||Extra $100 per month|
|Monthly P&I payment||$1,216.04||$1,266.04||$1,316.04|
|Pay-off time||30 years||27 years 11 months||26 years 2 months|
|Saved time||0||3 years 1 month||4 years 10 months|
|Total interest charges||$197,776.11||$182,520.27||$169,840.73|
Based on the table, if you pay an extra $50 every month by the third year of your mortgage, you’ll shave off 3 years and 1 month from your term. This will save you $15,255.84 on overall interest costs. Meanwhile, if you pay an extra $100 per month, you’ll remove 4 years and 10 months from your term. This means you can pay off your mortgage in 26 years and 2 months. It will also save you $27,935.38 in total interest expenses. Consider making extra payments on your loan to maximize your savings.
Refinancing Into a 15-year FRM
In a couple of years, once you’ve increased your income and obtained better job stability, you can refinance into a 15-year FRM. This is especially beneficial when general market rates fall significantly low. But note that refinancing comes with specific requirements and expensive closing costs. Your credit score must be at least 620 to qualify for a refinance. However, competitive rates are offered to borrowers with high credit scores of 700 and above. So make sure to improve your credit rating before taking this option.
Next, closing costs for refinancing typically ranges between 3% to 6% of your loan amount. For instance, if your mortgage balance is $220,000, your closing cost can be anywhere between $6,600 to $13,200. To justify this steep expense, financial advisors recommend refinancing 1% to 2% percent lower than your current rate. Obtaining a low enough rate will help you recoup the cost of refinancing faster. Refinancing is ideal only if you’ll stay long-term in a home, which is enough time to recover the cost and earn savings.
To demonstrate how refinancing can help you save, let’s review the following example. Let’s say you bought a $300,000 home and made a 20% down payment of $60,000. You took a 30-year FRM worth $240,000 at 5.5% APR. After five years, your remaining principal is $221,905.41. You intend to refinance into a 15-year FRM at 4.2% APR. Let’s review the table below.
Home Price: $300,000
Original Loan Amount: $240,000
Original Loan Term: 30 years
Original Rate (APR): 5.5%
Refinance Loan Amount: $221,905.41
Refinance Loan Term: 15 years
Refinance Rate (APR): 4.2%
Total Closing Cost: $5,548.58
|Loan Details||Original Mortgage||Refinanced Mortgage|
|Monthly P&I payment||$1,362.69||$1,663.74|
|Total mortgage payments||$490,569.70||$305,021.16|
|Total interest charges||$186,902.63||$77,567.17 (w/ closing costs)|
According to the example, refinancing from a 5.5% APR to a 15-year FRM at 4.2% will increase your monthly payment by $301.05 per month. Though it’s a considerable increase, you’ll save more interest in the long run. Refinancing will reduce your total interest costs from $186,902.63 to $77,567.17 (including closing costs). Thus, you’ll save $103,786 if you refinance your loan compared to staying with your old mortgage. Our example shows you’ll save a large amount on interest expenses if you refinance into a shorter term with a lower rate.
Whether you decide on a 15-year mortgage or lean towards a 30-year plan, it’s important to fully understand the implications and responsibilities associated with each option.
Most financial experts suggest a 15-year FRM over a 30-year term, especially if you can afford the higher monthly payments. However, this comes with the caveat that all other pertinent retirement vehicles (401k plans, IRAs, stocks, etc.) are maximized as well. If you are not going to use your savings to bolster your personal economics, it might be better to choose a loan with higher payments. Over time, you pay much less that way. You also end your debt obligation more quickly.
Moreover, depending on what stage in life you’re in, one type of loan may make better sense than the other. For instance, a first-time homebuyer might select the 30-year option, while a borrower at 55 might more reasonably choose a 15-year term. Your personal situation and earning capacity will definitely affect your decision, as well as your goals.
It’s important to remember that you can choose a 30-year option and pay it sooner by making additional payments. If you cannot qualify for a 15-year term, this may be the best way to maximize your mortgage savings. Though your APR may be higher with a 30-year FRM, your legal obligations each month will still be lower. Extra payments are flexible, so you decide how much more you can add per month. The higher extra payments you make, the more you can save on interest. Just make sure to ask about prepayment penalties before making additional payments.
As with any financial direction, it’s important to weigh out all your options. Consider talking to a qualified advisor before making any commitments. In the end, whether you decide on a 30-year of 15-year mortgage, you should choose a loan that best suits your financial capacity and needs.
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