Ask Clark: Should I take out a 15-year mortgage instead of a 30-year loan?

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sticky note that says 'mortgage payment due'
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I love 15-year mortgages, yet no matter how much I sing their praises, I can’t really seem to get people excited about them!

People get scared off by the larger monthly payment that goes along with a 15-year loan without stopping to consider the benefits.

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Why I love 15-year mortgages vs. 30-year mortgages

A lot of times people who are perfect candidates for a 15-year loan still take out a 30 year-mortgage. That’s probably because people who are really careful with money tend to do a lot of “What if?” thinking.

What if something happens at my job? Now I’m stuck with this much larger monthly payment on 15-year loan versus a 30, what will I do?

But I’d encourage you to think about the positives of a 15-year mortgage instead of the possible drawbacks:

  1. You’re out of debt in half the time.
  2. You pay so much less interest over the years.
  3. The interest rate on a 15 tends to be one-half of an interest point lower to as much as a full interest point lower than a 30, depending on current market conditions.

Let’s take a look at that second point with an illustration of exactly how much less in interest you’ll pay with a 15-year loan versus a 30-year loan.

These numbers, courtesy of MortgageCalculator.org, assume that you put a 20% down payment on a $200,000 home to avoid paying private-mortgage insurance. So you’re effectively taking out a $160,000 loan:

Home value Down payment Interest rate Loan term Interest paid
$200,000 $40,000 5% 30 $149,209.25
$200,000 $40,000 5% 15 $67,748.56

The numbers are stunning; you pay less than half the interest over the life of the loan with a 15-year versus a 30-year mortgage!

In addition, a 15-year mortgage also helps you build up equity in your home so much quicker. You’re keeping money in your pocket instead of paying it to the bank.

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A lot of times, I find that people who are great candidates for a 15-year mortgage already are doing so many other things right in their financial lives — they’re great savers, they’re building money for their retirement, they have money put aside for emergencies and all the rest. So you only compound the benefit to yourself if you’ll do a 15-year mortgage instead of 30.

If you’ve checked those other boxes — if you’re somebody who lives on a lot less than you make — then you should take this one additional leap and look at the 15-year loan when you’re looking for a mortgage.

This is especially true if you are 45 or older. Then I absolutely want you to look at a 15-year loan instead of a 30 when you’re buying a home. Once you hit retirement, it’s so much better if you can be mortgage-debt free and not having to worry about a house payment each and every month. It allows you to live on less in retirement.

I know it might mean you have to buy a little bit smaller home to be able to afford the monthly payment on a 15-year loan if you’re in your mid-40s or later, but the benefit to your wallet and your financial security will be extraordinary.

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