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What Length Mortgage Should I Choose?

What Length Mortgage Should I Choose?

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience
  • Mortgage Length Overview
  • One of the key decisions you make when you select a mortgage is to the length of your loan.  Length of your mortgage is also called your loan term.  Lenders typically offer mortgages with 10, 15, 20, 25 and 30 terms, with the 30 year term being the most popular.  What length mortgage you choose is an important decision because it impacts what size mortgage you can afford, your mortgage rate, monthly payment and total interest expense over the life of your loan.

    For example, most people select a 30 year mortgage because it offers the lowest monthly payment which enables you to qualify for a higher loan amount. But the mortgage rate for a loan with a shorter term, such as a 15 year mortgage, is lower which enables you to save a significant amount of money over the life of your loan but your monthly payment is higher. So there are trade-offs between shorter and longer term mortgages that borrowers should consider when answering what length mortgage should I get?

  • CalculatorUse our Mortgage Calculator to understand how mortgage length affects your monthly payment and total interest expense
  • How Mortgage Length Impacts Your Interest Rate, Monthly Payment and What Size Loan You Can Afford 
  • The table below outlines some basic guidelines for mortgage length.  To summarize the table, the longer the length of you mortgage, the higher your mortgage rate, the lower your monthly payment but the more interest expense you pay over the life of the loan.  Additionally, the longer the term the larger the mortgage you can afford because the monthly payment is lower.  The reason your total interest expense is higher with a longer mortgage is because you are borrowing the money for a longer period time which increases your interest cost. 

    The table also shows that the shorter your mortgage length, the lower your mortgage rate, the higher your monthly payment but the lower your total interest expense. The reason your monthly payment is higher with a shorter mortgage even though your mortgage rate is lower is because you are repaying the loan over a shorter length of time which results in an increased payment as compared to a mortgage with a longer length.

  • Guideline Explanation
    Shorter term = lower interest rate A shorter term means less risk for the lender providing you the loan and less risk means a lower interest rate for you
    Shorter term = higher mortgage payment Even though mortgages with a short term have lower interest rates, they have higher monthly payments because you are repaying the principal amount of the mortgage over a shorter period of time
    Longer term = larger mortgage you can afford For example, if you can afford to spend a maximum of $3,000 on your monthly mortgage payment, you will be able to afford a larger mortgage amount with a longer term than you could with a shorter term
    Longer term = more interest expense Even though your mortgage payment is higher with a mortgage with a shorter term, you pay much less in total interest expense over the life of the mortgage because you pay off your mortgage faster
  • The example below shows what size mortgage you could afford with the same monthly payment for different lengths of mortgages.  The example demonstrates how you can afford a larger loan amount with a longer mortgage.  Note how the monthly mortgage payment does not change while the loan size increases significantly as the mortgage length increases.  In this example you can afford a $610,000 loan with a 30 year mortgage as compared to a $427,000 loan with a 15 year mortgage -- a significant difference in loan amount.  The example also illustrates how your mortgage rate increases as the length of your loan increases but your monthly payment stays the same.

  • Mortgage Term
    10 Years 15 Years 20 Years 30 Years
    Interest Rate 3.00% 3.25% 4.00% 4.25%
    Mortgage Size $310,000 $427,000 $495,000 $610,000
    Monthly Mortgage Payment $3,000 $3,000 $3,000 $3,000
  • The downside to a longer mortgage is that the borrower pays thousands of dollars more in total interest expense over the life of the loan.  In the example below, we hold the mortgage size constant at $300,000 to demonstrate how the monthly payment decreases as the mortgage length increases but total interest expense increases significantly the longer the loan.  This example illustrates how getting a mortgage with a shorter term can save you hundreds of thousands of dollars in interest expense over the course of your loan.  In this case, the borrower saves $151,000 in total interest expense by selecting a 15 year term as opposed to a 30 year term -- for the same mortgage amount.

  • Mortgage Term
    10 Years 15 Years 20 Years 30 Years
    Interest Rate 3.00% 3.25% 4.00% 4.25%
    Mortgage Size $300,000 $300,000 $300,000 $300,000
    Monthly Mortgage Payment $2,900 $2,110 $1,820 $1,475
    Total Interest Expense $48,000 $80,000 $136,000 $231,000
  • The table below shows mortgage rates and fees for leading lenders in your area.  The table shows 30 year fixed rate mortgages, which means your interest rate is higher but your monthly loan payment is lower.  We recommend that you contact multiple lenders to understand how your mortgage length impacts your loan terms.  Shopping for your mortgage is the best way to find the loan that is right for you.

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    Current Mortgage Rates as of January 23, 2019
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    Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click here for more information on rates and product details.
  • Now that you have an understanding of how mortgage length affects your mortgage rate, mortgage payment and total interest expense, we can return to the question of “What length mortgage should I get?”  The answer to that depends on your financial goals.  If you are seeking to maximize your mortgage amount and minimize your mortgage payment, then you should select a 30 year mortgage.  If you can afford a higher monthly mortgage payment and want to save tens of thousands or even hundreds of thousands of dollars in interest expense over the life of your loan, then you should choose a shorter mortgage term, such as a 15 year loan.  Although most people select a 30 year mortgage, consider choosing the shortest term that will also allow you to feel comfortable with your monthly mortgage payment.

    Review our What Length Mortgage Should I Choose video to determine the loan term that is right for you.

  • FREEandCLEAR Mortgage Instructional Video

    What Length of Mortgage Should I Choose? Instructional Video

  • One creative way to think about mortgage length is to get a 30 year mortgage but make the same monthly payment that you would with a 15 year loan, so a higher payment than what is required.  That way you maintain the flexibility of having a lower required monthly payment that goes along with a longer mortgage (in case you cannot afford to make the higher payment), but you pay off your mortgage in approximately 15 years and save thousands of dollars in interest expense.  Paying more than your required mortgage payment is called mortgage acceleration.  We provide a comprehensive explanation of how mortgage acceleration works, including the potential benefits for borrowers.

  • Great Mortgage IdeaWe recommend that you pay off your mortgage as soon as possible so that you can start paying yourself instead of paying interest to the bank
  • Use our free personalized mortgage quote feature to review loan proposals for top-rated lenders.  Our quote form makes it easy to shop for a mortgage, is free, no obligation and requires minimal information.

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  • Sources

    Loan Term: https://www.consumerfinance.gov/owning-a-home/loan-options/#anchor_loan-term_361c08846349fe

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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