Why a 30-Year Mortgage May Not Be Your Best Option

by Maurie Backman | Published on Nov. 18, 2021

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Before you sign a 30-year loan, consider the drawbacks.


Key points

  • Despite its popularity, there are drawbacks to taking out a 30-year mortgage.
  • You may want to consider other loan terms based on your circumstances and goals.


There's a reason so many people who take out mortgages opt for a 30-year loan. When you take out a 30-year mortgage, you spread your loan payments out across 360 months. You end up spending less on a monthly basis than you would with a 20- or 15-year mortgage.

In spite of that, you may not want to sign a 30-year loan. Here's why.

1. You'll spend more on mortgage interest

The shorter your mortgage term is, the less interest you'll be charged for your loan. That's because lenders take on less risk with shorter-term loans than longer-term ones. If you take out a 30-year mortgage, you could end up spending quite a bit of money on interest by the time your home is fully paid off.

As of this writing, the average 30-year fixed loan is sitting at 3.260%. Meanwhile, the average 20-year loan is at 2.9%, and the average 15-year loan is 2.48%.

Now, let's say you're looking to borrow $200,000 to finance a home. With a 30-year mortgage, you'll spend a total of $113,902 in interest over the life of your loan. With a 20-year mortgage, you'll spend $63,906. With a 15-year loan, you'll only spend $39,773. That's a lot of savings you could potentially reap by paying off your home faster and snagging a lower mortgage rate on your loan to begin with.

2. You may not pay your home off as early as you'd like

Some people have the goal of paying off their home by the time retirement rolls around. You may have a similar goal, but if you take out a 30-year mortgage, you might lower your chances of meeting it.

Say you're 37 when you buy your first home and you want to retire at 65. That means you may not own your home outright by retirement if you stick to your repayment schedule and don't try to accelerate it.

3. It might take you a while to build equity

Equity refers to the portion of your home you own outright. If your home is worth $250,000 and you owe $200,000 on your mortgage, you'll have 20% equity in that property, or $50,000 worth of equity.

Having home equity is a good thing since you can borrow against it as needed, and it’s easier to move when you have equity. But if you take out a 30-year mortgage, it may take you a long time to build up equity since you'll be paying off that home more slowly.

Is a 30-year mortgage right for you?

Many people end up with a 30-year loan because they can't afford the higher monthly payments that come with a shorter-term loan. If you can swing those higher payments, you might benefit from a loan that you pay off sooner.

Not only is there something to be said for not having housing debt hanging over your head, but taking out a shorter-term loan means potentially saving a lot of money on interest. That alone could benefit you financially in a number of different ways.

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