The 30-year fixed-rate mortgage is the most popular home loan option for most Americans. However, you don’t have to commit to a three-decade term when purchasing a home or refinancing an existing loan. You can opt for a 15-year mortgage instead, which cuts the repayment period in half. Let’s explore the pros and cons of a 15-year mortgage to help you determine if it’s the right choice for you.

What is a 15-year mortgage?

A 15-year mortgage is a home loan repaid in monthly installments over 15 years, with a fixed interest rate and monthly payment for the loan’s duration. While repaying your loan faster and saving on interest is appealing, a shorter loan term results in higher monthly payments.

Benefits of a 15-year fixed mortgage

Reasons to consider a 15-year mortgage include:

  • Long-term savings: 15-year mortgage rates are generally lower than 30-year rates. The shorter term reduces the lender’s risk, resulting in a better rate for you.
  • Faster accumulation of home equity: Repaying the loan principal more quickly builds equity in your home sooner. This can lead to earlier cancellation of private mortgage insurance (PMI) and quicker access to a home equity line of credit (HELOC) or home equity loan.
  • Pay off your home sooner: If you’re nearing retirement or considering early retirement, eliminating your mortgage in 15 years instead of 30 can be advantageous. Even if you don’t mind the monthly payments, redirecting this money can help you achieve other financial goals or boost your discretionary income.

Drawbacks of a 15-year fixed mortgage

Drawbacks of choosing a 15-year mortgage over a 30-year mortgage include:

  • Larger monthly payments: A shorter loan term results in higher monthly payments compared to a 30-year mortgage.
  • Tougher qualification requirements: Lenders need to verify that you can afford the larger payments, making it potentially more difficult to qualify for a 15-year loan.
  • Fewer resources for other goals: Higher mortgage payments may leave less money available for building an emergency fund, contributing to retirement plans, or pursuing other long-term financial objectives.

Who is a 15-year fixed mortgage best for?

If you can afford higher monthly payments, a 15-year mortgage typically offers a more competitive interest rate than a 30-year loan. Balancing other financial priorities and making timely payments can make this a strategic choice.

However, a 15-year mortgage might not be suitable if you have high-interest personal loans, auto loans, or credit card debt. It may be wiser to prioritize paying down these balances first, as saving on mortgage interest won’t benefit you in the long term if you’re accumulating interest on other debts.

Additionally, if you lack substantial cash reserves or have an uneven income, the higher payments of a 15-year mortgage could create financial strain. Avoid committing to larger payments if it leaves you financially strained and unable to invest or save for retirement and other future needs.

Refinancing to a 15-year mortgage

Buying a new home isn’t the only time to consider a 15-year mortgage. You can also refinance to a 15-year mortgage to take advantage of a shorter loan term. If you initially took out a 30-year mortgage and interest rates have since dropped, refinancing might be a smart move. Ideally, you should be at least halfway through your mortgage term for refinancing to be most beneficial. Additionally, to offset the new closing costs, you’ll need to plan on staying in the home for several more years to break even.

Should you get a 15-year mortgage?

“Before signing up for a 15-year mortgage, consider your goals and finances,” advises Andrew Dehan. “A 15-year mortgage will save you money on interest and help you build equity faster than a 30-year mortgage. However, it comes with a significantly higher monthly payment, which could make money tight if you experience a drop in income or unexpected expenses.”

When deciding between a 15- and 30-year loan, a mortgage calculator can help you compare the numbers for both scenarios and determine what makes the most financial sense for you.

“There’s no one right answer,” says Jeff Ostrowski. “It really depends on your attitude towards debt. If you’re comfortable using debt as a financial tool, the savvy move is to maximize your mortgage and invest more money in stocks. But if you prefer to be debt-free, a 15-year loan will help you reach that goal more quickly.”

How to pay off a 30-year mortgage in 15 years

If you want to pay off your 30-year mortgage sooner without committing to the higher payments of a 15-year loan, consider making extra mortgage payments. This approach can speed up your payoff timeline, though it might not shorten it all the way from 30 to 15 years.

You can apply additional payments directly to your loan principal whenever you have extra funds. For instance, using an income tax refund to pay down your principal can be effective. Alternatively, you could make biweekly mortgage payments instead of monthly ones. By doing this for a year, you’ll end up making 13 full mortgage payments instead of 12.