Does a 30-Year Mortgage Make Sense in 2022?

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You may want a 30-year loan for a few key reasons.

Key points

  • You'll generally pay more interest on a 30-year mortgage than a shorter-term loan.
  • A 30-year loan could also mean lower, more affordable monthly payments.

If you're looking to buy a home in 2022, you may be in for a challenge. We're starting off the year with home prices sitting at elevated levels. And until more inventory hits the real estate market, that's unlikely to change.

Making matters more complicated is the fact mortgage rates have already risen quite substantially this year. In fact, as of this writing, the average interest rate for a 30-year loan is 3.920%.

Now historically speaking, a rate below or around 4% is very competitive. But in the context of the rates borrowers enjoyed from mid-2020 through late 2021, it's high. Plus, we don't know if mortgage rates will continue to climb in 2022, and how high they'll get as the year moves along.

In light of that, you may be wondering if a 30-year mortgage is your best bet, or if it pays to take out a shorter-term loan to snag a lower interest rate. And the answer? It depends.

Why you might need a 30-year loan today

In December 2021, the median price for an existing home was $358,000. Now, let's say you're able to make a 20% down payment on that total, or $71,600. That leaves you with a mortgage of $286,400. If you take out a 30-year mortgage at today's average rate, that leaves you with a monthly principal and interest payment of $1,355.

Meanwhile, if you sign up for a 15-year mortgage, you might snag a much lower interest rate on your loan. As of now, the average 15-year mortgage rate is 3.095%. That loan will have you spending a total of $71,993 on interest in the course of paying off your home, as opposed to the $201,327 you'll spend on interest with a 30-year mortgage. That's a difference of over $129,000.

However, with a 15-year mortgage, you'll also be looking at a monthly principal and interest payment of $1,991, as opposed to $1,335 for a 30-year loan. And that's a payment you may not be able to afford.

That's why a 30-year mortgage may be your best bet if you're buying a home this year. The higher monthly payments that come with a 15-year loan may not work for your budget.

You're not stuck forever

You may be eager to lock in as low an interest rate on your mortgage as possible, so the temptation may arise to sign up for a 15-year mortgage. But if you think those higher monthly payments are a stretch, then that's a route not worth taking.

If you're unhappy with the interest rate you snag on a 30-year loan, remember you can always refinance your mortgage down the line if rates drop back down again. If in, say, two years from now your income rises substantially, you may have the option to reap savings by refinancing from your 30-year mortgage to a 15-year loan.

Either way, taking out a 30-year mortgage this year is hardly a bad call. And chances are, it's the route a lot of buyers are going to end up taking.

Our Research Expert