# 15 vs. 30 Year Mortgage: In an Infographic

If you are going to buy a home, you will inevitably encounter a very challenging question (unless you are quite wealthy): * “should I get a 15 or 30 year mortgage?”*.

What you decide could have lifelong consequences (after all, the term “mortgage”, by definition, is a combination of the French words “mort”, which means “death”, and “gage”, which means “pledge”).

On the surface, a 15-year mortgage rates are going to be lower than 30 year mortgage rates, which produces cost savings for the borrower. If we take a snapshot today:

- 15 year mortgage rates: 3.38%
- 30 year mortgage rates: 4.38%

Both rates are still near historical lows, but have risen noticeably in the last few months. As interest rates increase, the gap between 15 vs. 30 year mortgage rates typically widens.

If you crunch the numbers on a 15 vs. 30 year mortgage calculator, you will find something a bit surprising: the monthly mortgage payment for a 15 year mortgage is NOT twice the monthly payment for a 30-year mortgage. In fact, it’s significantly less than twice. This is due not only to lower interest rates, but also the compounding of 30 years vs. 15 years. In other words, you have the power of compounding working against you, not for you, with a 30-year mortgage.

Some things are better off shown in visual format, so I enlisted the help of my wonderful wife, who has been wanting to turn her graphic design background in to an infographic side income. A big thank you goes out to her. It’s actually the first infographic ever produced for 20somethingfinance, so I am quite excited. **You can click and zoom to expand:**

As you can see, the results are quite astonishing.

Now, many advocates of 30 year mortgages will say things like, *“just pay it off early”* or *“put extra towards the principle”* or *“rates are so low, you should just invest the savings instead of paying off the mortgage sooner”*. To do these things and have it actually pay off requires a rare combination of extreme investing discipline (habitually investing 100% of the difference), dollar cost averaging, solid market returns, and enough financial stability to not run in to hardship along the way. It could be done, but I wouldn’t trust myself to do it. Would you trust yourself?

In my opinion, the answer to the 15 vs. 30-year mortgage debate is pretty clear.

What do you think?

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While I definitely see the benefits of a 15 YR mortgage over a 30 YR, my wife and I chose a 30 YR for the lower payments. We have been paying double the principal each month to emulate a 15 YR mortgage, but if we DO run into financial hardship along the way, we want to be able to fall back on lower payments.

Thanks for putting a visual component to this choice, it looks pretty obvious now given the not-so-big difference in monthly payment. One thing I do think of, is that a lower required monthly payment of a 30 year gives flexibility should a job loss occur. Coming up with an extra $400/month might be a breaking point between keeping the house and foreclosure. I’m not sure if the higher interest rate would validate this thought process though.

Hi all – numerical error detected in the first iteration, so I took it down, and what you see now is correct.

When I first bought my condo, I thought I couldn’t afford a 15 year mortgage. Now I realize that I couldn’t afford not to get it. Now, I’m just paying it down like a 15 year mortgage with extra payments. But my interest rate is higher than it would have been.

Guys,

Have you looked into the Harp 2.0 program? Wells Fargo contacted us about this. We changed our 30 year mortgage to a 15 year mortgage and dropped the interest rate from 5.75% to 3.25%. Our monthly payment is about the same.

You’re clairvoyant, Jim. More on that in a post later this week.

Ha! You’re not the first to accuse me of being so.

I first got my mortgage 7 years ago. My condo is now underwater due to the market, but despite that, I was able to refinance to a 15 year mortgage with a lower interest rate. My payment actually came out about $20 lower. Not too bad! I was tempted to go with the 30 year in case I had a job loss or other unexpected event, but I don’t know of I could 100% trust myself to put the full difference each month as if it were a 15 year. That money in my hand might be too tempting. I decided that the job loss scenario is what emergency funds are for anyway, and even with 15 year, I am already working on paying it down much faster.

Nice infographic, tell your wife she did a wonderful job!

We’re paying off our mortgage early and decided to go with a longer term, this kept our actual payments low but we have the discipline to make extra payments each quarter. In 299 days we’ll be mortgage free!!!

I’ve found many of my friends didn’t know about 15 year mortgages, and the 30-year with 3% down and PMI is really common here in Central Florida. We went with a 15-year after crunching the numbers and knowing that the both of us are more likely to keep working for 15 years than 30, and an extra 400 a month was worth it to not be owing to the bank for another 15 years. Personally I feel like if you’re stretching to find 400 a month to go with the 15 year term, you might be at the top end of your budget already.

That’s great information. How does this weigh against the fact that mortgage interest is tax deductible? I’ve got friends who are rock solid with finance who advocate never having your house paid off because that interest is entirely tax deductible. Thoughts?

Very overrated benefit: http://20somethingfinance.com/mortgage-tax-deduction/

All I have to say, is I love your blog! Lots of bookmarks for future reference!

What if you put the difference into maxing out your 401k or Roth IRA. In theory we could do the 15 year mortgage, but I’d probably have to reduce my retirement contribution. I’m not sure that’s a worthy trade off.

Two more pieces of data I’d like to see, as I’m trying to decide this now:

1) What if you get the 30 (in case you lose your job) but you put down the additional principal required from what would ahve been the 15 year, for 5 years, then dont for 2 years (like you might have lost your job), then do again for the remainder: What have you saved? When is the loan “paid” off. (vs. 30 years).

2) What if it’s an investment property? When is the mortgage principle and interest better to have for tax write offs, vs. NOT?

I find the cost difference isn’t quite as drastic after adjusting for the present value of payments. A dollar 30 years from now is worth considerably less than a dollar today. To account for this without getting too much into details, I did a present value calculation based on 3% inflation and and found the 30-year mortgage only costs $34,639 more than the 15-year mortgage.

While it doesn’t change the final outcome in terms of which option is cheaper, I think the infographic should adjust for inflation because it would help illustrate how a 30-year mortgage works as a great hedge against inflation. After all, at 4.2% inflation, the two mortgages actually cost the same in today’s dollars.

Guys & Gals,

PLEASE go with a 15 year mortgage. OMG – I sooooooo wish we had done this when we first started out. That whole “I’ll pay my 30 year mortgage off as if it’s a 15 year mortgage” is crap. Life happens and you will always be able to “justify” why you can’t throw more at the mortgage when you really know you have 30 years to pay it off. But, when you’re under the gun and you absolutely HAVE to come up with the extra amount month after month after month, guess what? The crap falls by the wayside, you never miss it and you’re so much better off. We went with the 15 year mortgage and there were times when it hurt, but now we’re 2 weeks away from being completely mortgage free. Think we regret one minute of that – ha! Not for a nano-second. Oh – and we don’t have more crap in our garage/basement that we didn’t need to begin with.