Will You Regret Taking Out a 15-Year Mortgage?

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You can't afford to make a mistake with such a big loan.

Key points

  • A 15-year mortgage costs less over time than loans with longer terms.
  • Monthly payments are higher on 15-year mortgages.
  • You're giving up a lot of flexibility if you take out a 15-year loan.

When you borrow to buy a home, you'll have to decide how long your repayment term should be. Two of the most popular options are a 30-year fixed-rate mortgage and a 15-year fixed-rate mortgage.

As the name implies, a 15-year loan is repaid in half the time as a 30-year loan, which lets you become debt free much more quickly. It also comes with a lower interest rate in most cases. The low rate and short time you're responsible for paying interest both mean that a 15-year mortgage is considerably less expensive.

But while the speedy path to debt freedom coupled with the low rate can make taking out a 15-year mortgage seem very attractive, there are some big downsides. Here's why you may end up unhappy with a 15-year loan.

Your monthly payments will be higher

One big disadvantage of taking a 15-year mortgage is that you'll have higher monthly payments. Using the day's average interest rates from Nov. 26, 2021, here's how it works:

Loan Term Average Interest Rate Principal & Interest (Per $100,000 Borrowed)
15-year 2.626% $673.00
30-year 3.330% $440.00
Data source: The Ascent's national mortgage interest rate tracking

The difference in these two calculations comes to $233 more per $100,000 borrowed with a 15-year loan. And that means you'd have a lot less money to do other things.

You'll have less flexibility for your money

There are a few problems with paying more each month on a 15-year loan. First, while you can always make larger payments than the minimum if you want to, you can't make smaller payments without facing fees and the potential risk of foreclosure. A 30-year loan with much smaller monthly payments could be paid off in 15 years if you wanted to pay more toward it. But once you commit to a 15-year mortgage, you can't decide you'd rather take more time to pay off the loan when you hit a financial speedbump.

Second, the higher monthly payments mean you have less money to do things like pay down other more expensive debt or invest. You're significantly limiting the potential return on investment (ROI) you're making from your money. The ROI you'll get from paying the 15-year loan is only the interest saved. And when mortgage rates are as low as they are now, that isn't a high ROI. By contrast, investing in an S&P 500 index fund provides average annual returns of around 10%. So your money could do more for you if you didn't tie it up in an expensive mortgage.

If you end up with less total wealth or you face serious struggles paying your high mortgage payment, you could regret taking out a 15-year loan. It's worth considering these potential outcomes before you decide what mortgage is right for you.

Our Research Expert