Does a 15-Year Mortgage Make Sense in 2022?

You may want to consider a shorter-term loan this year for one big reason.

If you're looking to buy a home this year, the good news is that mortgage rates are still fairly competitive from a historical standpoint. The bad news, however, is that they've started the year off higher. And there's a good chance rates will continue to rise as 2022 moves along.

All things considered, it pays to consider a 15-year mortgage this year, if you can afford one. Not only will a 15-year loan leave you mortgage-free sooner, but you might save yourself a substantial amount of money on interest.

The 15-year difference

The shorter your borrowing term when taking out a mortgage, the lower the interest rate you're likely to be charged on your loan. As of this writing, the average interest rate for a 30-year loan is 3.920%. For a 15-year loan, it's 3.095%.

Now, say you're borrowing $100,000 to buy a home. With a 30-year loan, you'll spend a total of $70,297 on interest to pay off your home. With a 15-year loan, you'll spend $25,137. That's a difference of $45,160.00, which amounts to a lot of savings.

What’s more, if you're buying a home in your 40s or 50s, a 30-year mortgage generally won't allow you to pay off your home in time for retirement (unless you accelerate your repayment schedule). A 15-year mortgage, on the other hand, could have you mortgage-free well before that milestone.

The drawbacks of taking out a 15-year loan

Of course, the one downside of taking out a mortgage with a shorter repayment period is having larger monthly payments to deal with. In our example, you'll spend $473 a month on principal and interest on your 30-year loan. With a 15-year loan, you'll spend $695.

If you can afford that extra $222 a month, great. But if that's a stretch for you, then a 30-year mortgage is probably a better bet.

Remember, there's always the option to pay extra on your mortgage if you have spare cash on hand. But if you commit to a shorter-term loan, you can't just pay less on occasion because money is tight that month.

Plus, the extra money you spend each month with a 15-year mortgage is money you can't use for other purposes, like building a retirement nest egg. You'll need to make sure taking on a higher monthly payment won't stop you from meeting other big goals, because if it does, it may not be worth it.

What's the right call?

Though mortgage rates are still pretty competitive from a historical standpoint, they're already higher than they were in all of 2021. And they're more likely than not to continue ticking upward this year. In light of that, it could pay to sign up for a 15-year loan to lock in a lower interest rate on your mortgage.

But if you can't manage the higher monthly payments that come with a 15-year loan, don't sweat it. Even if you get stuck with a 30-year mortgage at around 4%, that's still a pretty good interest rate. And if rates end up dropping down the line, there's always the option to refinance your mortgage if a better offer comes along.