The Difference between a 15 and 20-Year Mortgage Loan


When shopping for a mortgage, there are many different options. Fifteen and 20-year mortgages can be a great option, especially when compared to a 30-year mortgage. There are a few differences along with similarities.

Why Get a 15-Year Mortgage?

There are many advantages of a 15-year mortgage to be aware of, especially when compared to a traditional 30-year mortgage. You can usually get lower interest rates.

With this type of loan, you can build your home equity much faster. If you stretch your home mortgage to 30 years then you are building limited equity in the early portion of the loan.

This allows for greater life certainty. If you can build equity faster than you will have greater certainty in your life and it can be better in an economic downturn.

Why Get a 20-Year Mortgage?

If a 15-year mortgage isn’t right for you then a 20-year mortgage can be the next best option.

Your interest rate can be better than a 30-year loan. Depending on the amortization schedule, the advantage of this is that it can save you about $50 a month, which means you can save $150,000 over the life of the loan.

The monthly payments will be more affordable than a 15-year mortgage. For example, if you have a $150,000 mortgage, an estimate of payments for 30 years could be $727 a month but with a 20-year loan it’s about $889 a month and with 15 years it’s $1,063 a month.

This makes the 20-year mortgage $174 cheaper than the 15-year mortgage and you can use this money to build your emergency savings or pay down debt.

The amortization schedule follows closer to a 15-year than a 30-year loan. The good news about a 20-year mortgage is that it’s closer to a 15-year than a 30-year option.

A good representation of how different the loans can be is to look at the remaining loan balance five years into the loan. After owning the home for five years, it could be time to move up to a nicer one.

After five years into a 30-year loan with a $150,000 mortgage, you still owe $135,943. If you went with a 20-year mortgage then you only owe $122,291. This can make a big difference when it comes to selling a home.

With this option, you get the benefit of a 15-year loan for half the cost. Both 20-year and 15-year mortgages are great for refinancing. It’s human nature to want to get the best deal and a 15- or 20-year mortgage can give you the better deal when compared to a 30-year mortgage.

Jumbo Mortgage

A jumbo mortgage is used if the amount of the mortgage passes limits set by Freddie Mac and Fannie May. Jumbo loans can be used for a primary residence, along with investment properties or vacation or second homes. Jumbo loans are also available in 15, 20, or 30-year options so you will need to decide the best option based on your financial situation.

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