Comparing 15-Year Mortgage Rates to 30-Year Rates

If you’ve decided to purchase a new home this year, then there’s a good chance you’ve begun looking at mortgage options. There’s also a good chance that you’re a little bit overwhelmed by all of the mortgage rates and types being thrown around. It can get a little confusing when you’re comparing two mortgage options and you can’t decipher which one is better. For example, most either come with 15-year mortgage rates or 30-year mortgage rates. So let’s begin with that and break down the difference between the two in order to make it easier to determine which option is best for you.

The difference between the monthly payments

One of the most common mistakes that homebuyers make is that they’ll look at the surface numbers and make a decision based off of that. For example, when you look at a 15-year mortgage rate, you’ll immediately see that the monthly repayment will be substantially more than a 30-year mortgage rate. In fact, at current mortgage rate averages, the monthly payment on a 15-year mortgage rate is on average 51 percent higher than that of a 30-year mortgage rate. That’s a huge chunk of change! The thing is, while you will be spending twice as much money on your mortgage payments for 15 years, you’ll actually be saving more money over the long term.

The difference between the interest rates

Lenders will reward homebuyers that choose to pay off their mortgage sooner over those that pay them off over a longer period of time by providing them with a lower interest rate. This makes sense, because the sooner a lender gets their money back, the better. At the moment, the average interest rate on a 30-year mortgage is 3.66 percent, while the average interest rate on a 15-year mortgage is 2.98 percent. That 0.68 percent difference is a lot when taking into account a loan that’s in the hundreds of thousands, not to mention that the duration of the loan. Not only will you end up with lower interest rates by choosing a shorter loan term, you’ll also end up paying less in interest because you’ll pay off the shorter term loan much sooner.

How to choose between the two

Typically, choosing a 15-year mortgage is the best way to go. Not only do you end up paying way less interest, but you’ll be done with your mortgage payments 15 years sooner. However, not everyone is financially able to pay an average of 51 percent more per month on their mortgage, so really the decision needs to be based off of your present and future financial situation. To make it easier to understand the actual costs behind the percentages, let’s take a look at a mortgage of $200,000. We’ll use the current interest rates for both – 3.66 percent interest rate for a 30-year mortgage and a 2.98 percent interest rate for a 15-year mortgage. Using these numbers, your monthly payments on a 15-year loan will be $1,379. The payments on a 30-year loan will only be $916 – this is a difference of $463. However, while you will be saving $463 a month with a 30-year loan, you’ll end up spending $81,513 more than the 15-year loan when all is said and done.
Hopefully, now you’re a little more clear on the differences between a 15-year mortgage loan and a 30-year mortgage loan. There are definite pros and cons to both, but you should choose the one that best fits your current and future financial situation.

To find out which type of loan is best for you, fill out an application to speak to one of our loan specialists today!