3 Signs a 15-Year Mortgage Isn't Right for You

If you've been trying your hardest to buy a home this year, you may be frustrated by how expensive it is to sign a mortgage. And while mortgage rates could drop later on in 2024, especially if the Federal Reserve moves forward with interest rate cuts, they might still remain high, historically speaking.

As such, you may be thinking of taking out a 15-year mortgage to save money on your loan's interest rate. It's a good idea in theory, but here are a few signs that this isn't a good strategy for you.

1. The higher monthly payments will be a stretch

As a general rule, it's not a good idea to spend more than 30% of your take-home pay on housing. And that 30% should include not just mortgage payments, but also expenses like property taxes and homeowners insurance.

Meanwhile, as of this writing, the average rate on a 30-year mortgage is 6.82%, per Freddie Mac. But the average rate on a 15-year loan is 6.06%.

So let's say you're borrowing $300,000 to buy a home. A 30-year loan at the above rate will have you spending $1,959 a month on principal and interest. A 15-year mortgage at the above rate will have you spending $2,539.

But that extra $580 might make it so you're allocating more than 30% of your pay to housing, putting you at risk of falling behind on other bills. That's not a great thing to do. So if you can't stick to that 30% threshold with a 15-year loan, then you may be better off with a 30-year mortgage, even if it means getting stuck with a higher interest rate and a longer payoff timeline.

2. You have other goals to save for

While a 15-year mortgage might save you money on interest, it might also impede other financial goals you have. Let's say you have kids who are in middle school, and you're trying to buckle down and save for their college. If you're spending many hundreds of dollars extra per month on a mortgage, that's money you can't invest for their education.

Similarly, let's say you're first buying a home at age 50. You may be inclined to choose a 15-year mortgage to get your home paid off in time for retirement. But if your nest egg needs work, making those higher mortgage payments might stop you from funding your retirement account, leaving you with a big shortfall once your career wraps up.

3. You don't have much in the way of emergency savings

No matter your housing situation, it's important to have a fully loaded emergency fund. But you can argue that it's especially important to have money in the bank when you're buying a home, because you always run the risk of having to make sudden repairs.

If your emergency fund isn't in good shape -- meaning, you don't have anywhere close to three months' worth of essential expenses socked away -- then you may want to stick to a 30-year mortgage. Those lower monthly payments could make it possible to catch up on emergency savings and potentially avoid costly debt as a result.

It's easy to see why a 15-year mortgage might appeal to you. But before you rush to sign one, run the numbers to see what it'll cost you on a monthly basis. And also, make sure your higher monthly payments won't get in your way of meeting other goals or building your financial security.