A 15-year loan generally has a higher monthly payment but lower total interest and faster equity buildup. A 30-year loan generally has a lower monthly payment and more flexibility, at a higher long-run cost. The right choice depends on cash flow, discipline, and what else the extra cash could do.
Who this may fit
Borrowers deciding between a shorter and longer amortization on a conventional loan.
Key decision factors
- Monthly payment tolerance
- Total interest paid over the loan life
- Opportunity cost of the extra payment
- Flexibility to make extra principal payments on a 30-year term
Illustrative example
Common mistakes
- Focusing only on the note rate difference
- Ignoring the difference in payment flexibility
- Overestimating discipline to voluntarily make extra payments
Questions to ask a licensed loan officer
- What are the pricing differences between 15 and 30-year for my file?
- How would a 30-year with a target extra payment compare to a 15-year?
- How do the two terms affect my qualification and reserves?