What Are the Pros and Cons of a 15-Year Mortgage?

Selecting a 15-year mortgage can be a great way to save money on interest when compared to a longer 30, or even 40-year, loan since the number of payments are cut in half. It can also offer slightly lower interest rates for borrowers with good credit who qualify. On the other hand, monthly payments are higher with a 15-year mortgage, so it is necessary to be able to budget for these. Choosing any mortgage requires a careful consideration of the risk one is willing to take, and a realistic projection of finances for the next 15 to 30 years.

In general, finance experts will not recommend choosing a 15-year mortgage at the expense of other important funds. These include an emergency savings account in case of job loss or high medical expenses, for instance, as well as a retirement account. If these other savings and investment accounts are in order, however, a mortgage with a shorter term can be a good choice. Borrowers will then own the home outright in a much shorter time. One of the main cons to a 15-year mortgage is that it carries a considerably higher monthly payment than a 30-year mortgage; experts generally advise not signing up for a payment that is more than 25 percent of one's monthly income.

A 30-year mortgage will have a lower payment, but often a slightly higher interest rate, whereas shorter term mortgages often carry lower interest rates. Over the course of a loan, the amount of interest paid on a 30-year loan will be approximately double that paid on a 15-year mortgage, which significantly increases the overall cost of the home. Most mortgages are also available in fixed or variable interest rates, which is another consideration to keep in mind when choosing a mortgage.

Some people consider another alternative if they find that the risk of a higher payment each month on a 15-year mortgage is just too great. Selecting a mortgage with a longer term and then making a larger payment than is owed each month can help borrowers to pay down the principle in a shorter period of time, but if something should happen such as the loss of a job, they can simply go back to making the required smaller payment. Of course, shorter term mortgages exist as well, such as ten years or even seven years; these can be a good choice for people who have a large emergency account, or who plan to move out of the home or refinance it before the mortgage matures.