Choosing a loan term with the whole horizon in view
Entry 1: three terms, one framework
Ledger note
Compare terms on four things: the required monthly payment, total interest over the life of the loan, how fast equity builds, and flexibility. Shorter terms usually come with lower quoted rates as well as faster payoff, so total interest falls sharply. Longer terms keep the required payment low, which leaves room in tight months.
Last reviewed against the primary sources listed below.
The four dimensions
| 30-year | 20-year | 15-year | |
|---|---|---|---|
| Required payment | Lowest | Middle | Highest |
| Total interest | Highest | Middle | Lowest |
| Equity pace | Slowest | Middle | Fastest |
| Flexibility in a hard month | Most | Middle | Least |
A question to ask yourself
If income dipped for six months, which required payment could you still make? Pick a term that passes that test, then decide whether to aim higher voluntarily.
Term questions readers send
What is the advantage of a 15-year mortgage?
Faster payoff, faster equity and much lower total interest, usually helped by a lower quoted rate. The cost is a higher required payment.
What's the difference between a 20-year and a 30-year mortgage?
A 20-year loan has a higher required payment but builds equity faster and costs less total interest than a 30-year loan.