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The 15-Year vs. 30-Year Fixed Mortgage: A California Borrower’s Guide

Should I use a 15-year or 30-year fixed mortgage loan when buying a home in California? Which one is better for my financing situation?

These are common questions among home buyers and homeowners alike. So today, we will examine the pros and cons of using the shorter 15-year mortgage, versus the longer (and more popular) 30-year fixed-rate home loan.

Quick Summary of Pros and Cons

The pros and cons can be summarized in a couple of sentences: You’ll have a larger monthly mortgage payment with a 15-year versus a 30-year fixed mortgage, for the same amount borrowed. But you could also save a lot of money in total interest costs over the life of the loan.

This is true whether you are buying or refinancing a home. So it’s important to consider the long-term costs, and not just the size of the monthly payment.

There are two reasons why you would pay less interest with a shorter-term loan:

  1. Borrowers who use the 15-year fixed-rate mortgage (FRM) usually end up with a lower interest rate, compared to borrowers who use the more popular 30-year loan. So you could pay less in interest each month, if you choose the shorter-term product.
  2. With a 15-year mortgage, you are also paying interest for a shorter period of time because the repayment term is shorter.

The shorter payment term, combined with the lower interest rate, could reduce your total interests costs by tens of thousands of dollars — or even hundreds of thousands. This is the primary appeal of using a 15-year versus a 30-year mortgage to buy or refinance a home in California.

With a 15-Year Mortgage, You’ll Pay Less Total Interest

If you choose the shorter loan option, your mortgage will amortize (or reduce principal) over a shorter period of time. This in turn will reduce the total amount of interest you pay on the loan.

Remember, you are paying interest on every one of your monthly payments. So when you spread those payments out over a longer period of time, you end up paying more money in total interest costs.

The 15-year fixed-rate mortgage typically has a lower interest rate than its 30-year counterpart. The size of this “gap” can vary over time. But it’s usually somewhere between half a percentage point and a full percentage point.

When this article was published, in April of 2022, the average rate for a 30-year fixed mortgage was 5.11% (source: Freddie Mac). For the shorter-term 15-year fixed, the average rate was 4.38%. So right away, you can see the potential for savings.

The downside of the shorter term is that you’ll end up with a larger monthly payment, despite the lower interest rate. That’s because you are essentially cutting the repayment period in half.

With a 30-Year Loan, You’ll Reduce Your Monthly Payments

By spreading your monthly payments out over a longer period of time, you can reduce the size of those payments. That’s the primary advantage of using the 30-year fixed mortgage, versus the 15-year option. And that appeals to a lot of home buyers in California, given our relatively high home prices.

In fact, the 30-year fixed mortgage loan is the most popular financing option among borrowers nationwide. People use this product as a way of reducing their monthly payments.

So it really comes down to a matter of priorities:

  • If you want to minimize your monthly payments, you should consider using a 30-year fixed-rate mortgage. You might pay a higher interest rate than you would with a 15-year loan. But you’ll also spread your payments out over a longer period of time, thereby reducing them.
  • If you can afford a higher payment but want to pay off the debt sooner, you should consider the 15-year product. This strategy could greatly reduce the total amount of interest you pay over the life of the loan.

Summary and Conclusion

Let’s sum up the key points discussed in this article. Using a 15-year versus a 30-year fixed-rate mortgage (FRM) has certain pros and cons.

You will have a larger monthly payment than you would with a longer-term loan. But you could also save a lot of money in interest costs, especially if you remain in the house for the full 15-year term. This is the number-one reason people choose a 15-year loan over a 30-year term when purchasing or refinancing a home.

Think about your long-term plans and your financial priorities. Are you mostly concerned with minimizing your monthly payments, or paying less interest over time? How long do you think you’ll keep the loan? This will help you decide which product is a better choice for you.

Have mortgage questions? Bridgepoint Funding is located in the Bay Area and serves borrowers all across California. We offer a wide range of mortgage financing options, including both the 15-year and 30-year fixed. Please contact us if you have mortgage-related questions or to apply for a loan.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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