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Where a 15-Year Mortgage Beats a 30-Year One

Homebuyers who haven’t seen an interest rate increase in nearly 10 years, may be tempted by lower-rate 15-year mortgages even though the Federal Reserve has finally raised rates. But do the advantages of a 15-year mortgage outweigh the costs? The answer depends partly on where you live.

We’ve crunched the numbers for the largest U.S. metros, and found that:

With the median US household income, a 30-year mortgage allows homebuyers to purchase 46% more house, but a 15-year mortgage provides triple the paid equity in just 5 years.
Homebuyers in areas where prices have a history of rising will benefit greatly from faster equity-building with a 15-year mortgage.
Buyers in areas with historically slow growing to flat housing prices will benefit less from shorter-term mortgages and potentially more from the borrowing power of a 30-year loan.

The Tradeoffs Between 30- and 15-year Mortgages

In general, 30-year mortgages have three advantages:

  • Monthly payments are lower
  • Borrowing power is higher
  • Tax benefits are greater

The primary advantage of a 30-year mortgage is lower monthly payments. On the median valued U.S. home, a 30-year mortgage comes with a payment that is $320, or 27%, lower than a 15-year mortgage. Lower payments also mean that a borrower’s debt-to-income (DTI) ratio is lower than a 15–year loan. This allows middle class buyers (a household earning the U.S. median income) to borrow $77,000, or 46%, more with a 30-year mortgage than a 15-year. Last, borrowers with a 30-year mortgage can write off nearly $68,000 more than a 15-year mortgage via the mortgage-interest deduction on their federal income taxes.

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