The Real Estate Encyclopedia
What Is The Difference Between A 30-year And A 15-year Loan?
Category - Mortgage Questions - Mortgage Loans FAQ's

A 30-year loan is paid off over a period of 30 years and a 15-year loan is paid off over just 15 years.  The 30-year loan typically carries a higher interest rate and payments are composed of mostly interest and a small amount toward the principal balance and only gradually reverse. Therefore, your equity in the home grows much slower than with a 15-year loan.


The interest rate on a 15-year loan is generally lower than for a 30-year loan but because the payoff period is shorter, the monthly payment for a 15-year loan is higher.  Your monthly mortgage payment also pays off additional principal earlier than with a 30-year loan. 


A 30-year loan works better for people who have little extra cash. On the other hand, if you have adequate savings and plan to live in this home into retirement, paying off the mortgage in 15 years can make sense.


As an example, the monthly payment for a $150,000, 15-year loan at 5.2 percent is about $1,202 per month. The monthly payment for a 30-year loan at 5.85 percent interest is $885 per month. The difference is $317 per month, but you will pay $102,240 less interest for the 15-year loan.

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