{"id":3651,"date":"2024-09-11T09:24:19","date_gmt":"2024-09-11T14:24:19","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=3651"},"modified":"2025-02-10T13:35:33","modified_gmt":"2025-02-10T18:35:33","slug":"15-year-or-30-year-mortgage","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/15-year-or-30-year-mortgage\/","title":{"rendered":"15-year or 30-year mortgage?"},"content":{"rendered":"\n

When trying to figure out how much house you can afford<\/a>, or work out the best price for a mortgage, a lot of people wonder whether they should go with a 15-year or a 30-year mortgage. While most lenders (including Tomo Mortgage) have other lengths, like a 20-year or a 5-year fixed rate conventional home loan, 15 and 30 are by far the most common loan types. So\u2026 how to decide which is the better option?<\/p>\n\n\n\n

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15-Year mortgage: turbocharged option<\/h3>\n\n\n\n

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A 15-year mortgage<\/a> is like a high-speed train to homeownership. You\u2019re paying off your home in half the time compared to a 30-year mortgage. This means higher monthly payments, but you\u2019ll save a ton on interest over the life of the loan. If you can manage the higher payments, you\u2019ll clear your debt faster and save more in the long run. It\u2019s intense but rewarding for those who can handle it.<\/p>\n\n\n\n

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30-Year Mortgage: slow and steady wins the race<\/h3>\n\n\n\n

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On the other hand, a 30-year mortgage is like cruising along a scenic route. It spreads your payments out over a longer period, making your monthly payments lower and more manageable. This option is gentler on your budget each month, but you\u2019ll end up paying more in interest over the life of the loan. It\u2019s a more relaxed approach, giving you more room to breathe financially.<\/p>\n\n\n\n

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Is a 15-Year Fixed Rate Mortgage a better financial decision than a 30-year fixed rate mortgage?<\/h3>\n\n\n\n

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Here\u2019s where an analysis between the two gets a lot more interesting. A 15-year mortgage, at first glance, might seem like the better option. You can qualify for a lower interest rate and pay off the entire mortgage faster and with less total interest. But, this also assumes that you don\u2019t pay off more of the principal each month in a 30-year mortgage (common), that you never refinance (most people do within about 8 years), and that you don\u2019t face a major financial issue in your future.\u00a0<\/p>\n\n\n\n

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To answer the question, we need to look at a \u201creal world\u201d scenario. Let\u2019s say you\u2019re a married couple with good credit, looking to buy your first home somewhere in the Houston, TX<\/a> area. You make $120,000 per year combined and have saved up $30,000 for your down payment (don\u2019t forget about the closing costs, see how much it costs to buy a home here<\/a>). You\u2019re doing a good job budgeting, and feel comfortable spending at most<\/em> 40% of your after-tax income on housing. That means, of the $7,900 you spend each month, you\u2019re going to want to spend about $3,160 on your mortgage (including taxes, and insurance).\u00a0<\/p>\n\n\n\n

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Factors<\/td>If you get a 15-year<\/td>If you get a 30-year<\/td><\/tr>
Home price<\/td>$415,000<\/td>$500,000<\/td><\/tr>
Down payment<\/a><\/td>$30,000<\/td>$30,000<\/td><\/tr>
Interest rate<\/a><\/td>5.5%<\/td>6.5%<\/td><\/tr>
Monthly payment (minimum)<\/td>$2,697<\/td>$2,970<\/td><\/tr>
Added principal payment<\/td>$15<\/td>$190<\/td><\/tr>
Time to payoff<\/td>179 months (under 15 years)<\/td>304 months (over 25 years)<\/td><\/tr>
Value of your home after 25 years<\/td>$2.2 million<\/td>$2.6 million<\/td><\/tr>
Added savings after home paid off, assuming $25k annual taxes after 15 years in property value increase<\/td>$140,000<\/td>$0<\/td><\/tr>
Total Value<\/td>$2.3 million<\/td>$2.6 million<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

As you can see, you might be able to take a lower interest rate and pay off the home a little faster on a 15-year mortgage, leading to less total money spent on the interest itself. It might seem like this is the better financial option, right? But that\u2019s not necessarily the case. That\u2019s because homes tend to increase in value a lot (we\u2019re putting it at 5.5% annual increase, but that\u2019s kinda small compared to the last few years).\u00a0<\/p>\n\n\n\n

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So, by taking the 30-year, you\u2019ll be able to put money down on a more expensive home, which means it\u2019s also earning more value every year. Now, you might have higher taxes and expenses associated with that home (if it\u2019s bigger, has a pool, etc.), but you\u2019re also living in a nicer home and you have more flexibility on payments, refinance options, higher interest tax deductions, and other factors that could work in your favor. In this scenario, since the house was worth $75,000 more on day one, that extra value is going to add up again and again. And, fingers crossed (there\u2019s no guarantees), that value could overtake the value you might save on lower principal balance, private mortgage insurance, and other fees.<\/p>\n\n\n\n

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The bottom line is that it\u2019s not as simple as \u201chow much money do I keep vs. how much do I pay in interest.\u201d It\u2019s well worth crunching the numbers with your loan officer to figure out the scenario that works best for you. <\/p>\n\n\n\n

You can do something similar for your own situation by checking out our home affordability calculator.<\/a> Or just sign up here<\/a> and we can talk you through your options.\u00a0<\/p>\n\n\n

Claire Gallaudet<\/a><\/p>

Claire is a Mortgage Analyst at Tomo, where she explores the data and trends shaping the housing market. She is especially interested in how economic forces impact homebuyers. A Seattle native, she now lives in Austin, where she balances analysis and communications with teaching yoga and walks around the lake with her dog.<\/p><\/div><\/div>\n\n\n

If you’re ready to start your journey to homeownership, get pre approved with Tomo Mortgage today.<\/a><\/p>\n\n\n\n

<\/div>\n","protected":false},"excerpt":{"rendered":"

When trying to figure out how much house you can afford, or work out the best price for a mortgage, a lot of people wonder whether they should go with a 15-year or a 30-year mortgage. While most lenders (including Tomo Mortgage) have other lengths, like a 20-year or a 5-year fixed rate conventional home […]<\/p>\n","protected":false},"author":31,"featured_media":3756,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[285,38],"tags":[],"class_list":["post-3651","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-home-buying-tips","category-mortgage-dictionary"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/tomo.com\/blog\/wp-content\/uploads\/2024\/09\/15-vs-30-year-mortgage-tomo-mortgage-jpg.webp","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3651","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/users\/31"}],"replies":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/comments?post=3651"}],"version-history":[{"count":2,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3651\/revisions"}],"predecessor-version":[{"id":3691,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3651\/revisions\/3691"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media\/3756"}],"wp:attachment":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media?parent=3651"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/categories?post=3651"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/tags?post=3651"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}