a client and private banker having a conversation in an office

15- vs. 30-year Mortgages Explained

When preparing to buy a home in New Jersey or refinance your NJ mortgage, the most common question we hear at Peapack-Gladstone Bank is, “Which is better, a 15- or 30-year mortgage?”

The answer is very individualized, as there are pros and cons to both. Here’s what you need to know when considering a 15-year mortgage or a 30-year mortgage in New Jersey.

Affordability of 15- vs. 30-Year NJ Home Loans

Fifteen and 30-year home loans are typically fixed-rate mortgages, which means the interest rates stay the same over the course of the loan. The major differences between 15-year and 30-year mortgages come down to interest rates and payments:

  • A 15-year mortgage generally provides lower interest rates but a higher monthly mortgage payment.
  • A 30-year mortgage generally comes with higher interest rates but a lower mortgage payment.

For most people, the biggest advantage of a 15-year mortgage the lower interest rate, which can help save a lot of money in the long run. Another benefit of a 15-year home loan is that you’ll build equity in your home much faster. In comparison, selecting a 30-year mortgage is attractive because the monthly payments can be much lower, sometimes up to 50%. For example, you might pay $2,000 a month for a 15-year mortgage and $1,300 for a comparable 30-year home loan.

When debating the pros and cons of each mortgage term, the first thing to determine is how much you can afford to pay per month while maintaining your emergency fund and saving for retirement. Our mortgage calculator can help you determine your budget.

Consider Your Age and Job Situation

If you can afford the higher monthly payments that come with a 15-year mortgage loan, you’ll enjoy long-term savings on interest. To determine whether a 15-year mortgage is right for you, next, take a look at your job security. You might qualify for a 15-year mortgage today, but if you lose your job later and can't make the payments, you may not have enough income to qualify for refinancing to take advantage of a 30-year loan's lower monthly bills.

If you are in the 50-something age range, weigh the pros and cons of paying off a mortgage over 15 years vs. taking out a 30-year loan that you will still have to cover during retirement. Having a 15-year home loan could mean knocking out your monthly mortgage payment right around the time you retire, minimizing your overhead in retirement. Choosing a 30-year loan, however, could allow you to put more money into your 401(k) or IRA while you're still working—plus, you may qualify for a mortgage-interest tax deduction.

Consider How Long You Plan to Live in Your Home

Another factor to consider when comparing 15- vs. 30-year mortgages is how long you plan to live in your new NJ home. If you plan to stay in your home for a short period of time—say eight years or less—a 30-year loan might make the most sense. You’ll benefit from lower monthly payments, and you won’t have to pay as much interest because you’ll be selling your home long before your loan’s pay-off date.

However, if you plan to live in your home for 15 years or more, a 15-year mortgage loan might make more financial sense if you can afford the monthly payments. With a 15-year loan, you may be able to save tens of thousands of dollars in interest.

Choosing a 30-Year Mortgage and Paying Extra

If you’re still on the fence weighing all of these factors, there is a potential third option: locking into a 30-year mortgage and adding extra money to your monthly payments whenever you can afford to. Before considering this as an option, confirm that your mortgage lender will allow you to put these extra payments toward your principal with no prepayment penalties.

With this option, you’ll have to pay the higher interest rate of a 30-year loan, but by paying a bit more whenever possible, you can dramatically shorten your mortgage term without committing to a 15-year loan's higher monthly payments.

Peapack-Gladstone Bank is here to help. Our dedicated New Jersey lending officers can walk you through the homebuying process and help you find the best mortgage for you. Remember that current mortgage rates, taxes and fees all factor into this important decision, and the right choice will depend on your personal circumstances. Contact us to learn more or set up an appointment.