How to decide – Forbes Advisor


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Mortgages come in all shapes and sizes, from low down payment options to jumbo loans. Beyond the type of mortgage you choose, you also need to decide how long you want to pay off the loan, this is called the mortgage term.

There are many types of mortgages to help you buy a home, but the most common tend to last 15 or 30 years. If you want to lower your monthly payments, you may need to extend your home loan to 30 years. A 15-year mortgage can have higher monthly payments, but halve the term of the loan, which also reduces the amount of interest you pay.

To determine which type of mortgage is best for you and compare your total costs, simply include the total cost of the house, your expected down payment amount, and the interest rate below.

Summary of the 15-year loan

Monthly payment

Total cost

(Main interest)

(deposit, principal, interest)

Cost per year (excluding deposit, taxes and insurance)

30-year loan summary

Monthly payment

Total cost

(Main interest)

(deposit, principal, interest)

Cost per year (excluding deposit, taxes and insurance)

Disclaimer: These calculations are based on estimates and may not be accurate depending on your lender and your personal credit profile.

What is a 30 year mortgage?

When you get a traditional 30-year mortgage, you pay a fixed amount of principal and interest each month over a 30-year period, or until you sell the house and pay off the mortgage sooner.

What is a 15 year mortgage?

Similar to the 30-year mortgage, you will have a fixed monthly payment based on principal and interest, but spread over 15 years.

Vs 15 years old. 30-year mortgage: how to decide

A 15-year and a 30-year mortgage can have fixed interest rates and fixed monthly payments for the life of the loan. However, a 15-year mortgage means your home will be paid off in 15 years rather than the full 30-year mortgage as long as you make the required minimum monthly payments.

The 15-year mortgage tends to have a lower interest rate, although mortgage rates have been generally low for some time. However, the monthly payments are higher on a 15-year mortgage because you pay off the principal faster than a 30-year mortgage.

Choosing between the two depends on your financial situation, including your credit rating and history, your down payment, and the amount of cash reserves you want to keep monthly.

A 15-year mortgage may be better suited if you have more monthly cash on hand and want to pay off your house faster, for example. Alternatively, a 30-year mortgage might be better for someone on a more limited budget or who wants to save money by paying less for their mortgage, but for a longer period. A longer term mortgage may also make more sense if you plan to stay for decades.

The interest rate environment also plays a role in how long you want to extend your mortgage. For example, if rates are low, it may make more sense to lock in that lower rate for the longer term and then use your extra monthly cash to invest in something else that has a higher rate of return at the end of the day. era, like stocks or buying investment property. Whereas, if the interest rates are high, you might want to get a shorter term mortgage so that you only pay that interest rate for 15 years instead of 30 years.

There is also the option of refinancing a 30-year mortgage to a 15-year mortgage at a later date if your financial situation changes and you want to pay off your mortgage faster or lower your interest rate.

Mortgage FAQs

How does a mortgage work?

A mortgage is a secured loan that uses the house as collateral for the lender to provide you with financing. This means that the lender will have a lien on your house until the mortgage is paid in full. After closing, you will make monthly payments, which cover principal, interest, taxes, and insurance. If you default on the mortgage, the bank will have the option of foreclosing on the property.

What are the types of mortgages?

There are several common types of mortgage loans.

These include conventional loans and jumbo mortgages, which are issued by private lenders but have more stringent qualifications because they exceed the maximum loan amounts set by the Federal Housing Finance Administration (FHFA).

Prospective buyers can also access federally insured mortgages, including the Federal Housing Administration (FHA), US Department of Agriculture (USDA), US Department of Veterans Affairs (VA) and 203 (k) loans. . The minimum qualifications for these mortgages vary, but they are all aimed at low- and middle-income buyers as well as first-time buyers.

In addition to the type of mortgage, borrowers can choose how long they want to pay off that mortgage, which is called the mortgage term. The terms of the mortgage loan are usually 15 or 30 years, which means you have 15 or 30 years to pay off the loan. For example, let’s say you choose a 15 year FHA mortgage. The type of mortgage loan is FHA, but the term is 15 years.

Some lenders offer personalized loan terms, which allow borrowers to choose a repayment schedule that doesn’t fall into the 15 or 30 year brackets.

How to apply for a mortgage?

Mortgages are available from traditional banks and credit unions as well as a number of online lenders. To apply for a mortgage, review your credit profile and, if necessary, improve your credit rating to qualify for the lowest possible interest rate.

Next, figure out how much of the house you can afford, including how much down payment you can make. When you’re ready to apply, compile the necessary documentation like income verification and proof of assets, and start shopping for the best rates.

Studies have shown that borrowers who compare get better rates than those who go to the first lender they find. You’ll want to know the rates they offer as well as the Annual Percentage Rate (APR) – this is the all-in cost of a loan, including fees. Some lenders may offer lower interest rates but charge higher fees, which can negate the savings.


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