What to Consider When Deciding Between a 15-Year and 30-Year Home Loan

28 July 2023
What to Consider When Deciding Between a 15 Year and 30 Year Home Loan

Making sure the mortgage's conditions are favorable to your financial situation is crucial before signing on the dotted line to finance a house and lot Philippines purchase. This includes not just finding the best potential interest rate but also picking the most suitable mortgage term.


The length of time you have to pay off your mortgage is called its "term." A house loan's term is the period during which payments are made; the most usual options are 15 and 30 years, while certain lenders may provide loans with durations as short as eight or ten years.


Deciding to choose between a 15-year versus a 30-year mortgage is a matter of weighing the pros and cons in light of your own financial situation.



Difference between the 15-Year and 30-Year Mortgage

A mortgage's term is the number of years over which interest and principal balance must be paid. Lenders often provide loan periods of 15 or 30 years, while alternative options may be offered.


There is little variation in the structure of 15-year and 30-year mortgages, with the only real distinction being the loan length. Your monthly payments may be lower with a 30-year mortgage, but a 15-year mortgage will save you money in the long term.


When determining how long you want to take to pay off your mortgage, there are a number of things to take into account, that may include the lowest monthly payment and interest rate depending on your financial budget. In light of this, we've included the benefits and drawbacks of both 15-year and 30-year mortgages to assist you in making a wise choice.



Pros and Cons of 15-Year Mortgage Payments

Getting this type of mortgage term means that there will be a fixed payment each month depending on the loan's principal and interest rate for a period of 15 years.



Pro: With regular payments, you can own your home in 15 years.

Having full ownership of your property after just 15 years is a big perk of a mortgage with a 15-year term. Soon after that, you won't have to worry about mortgage payments anymore. Getting out of debt quicker is a goal for a lot of individuals. A 15-year mortgage may be the best option for you if this describes your situation.



Con: This will significantly increase your mortgage payment each month.

The pace of life may go up at any moment. Before agreeing to a higher monthly mortgage payment, it's crucial that you take an honest look at your monthly budget and assess your lifestyle. You should avoid being "house poor," when all of your resources are used to pay for your home and nothing is left over for anything else, since you need to expect higher monthly payments for a 15-year mortgage term.



Pro: You'll be able to save a lot of money.

Savings on interest payments are another perk of a 15-year mortgage term. For this reason, lenders are more willing to provide preferential interest rates on loans with terms of 15 years rather than 30 years since it is simpler to foresee payback over a 15-year horizon.


In addition to this, there is also another reason why a 15-year term can help you to save money. Buyers are only taking out loans for half as long as they used to, drastically lowering the cost of their home loan.



Con: It could be more challenging to be approved for a 15-year mortgage.

A 15-year mortgage compels you to make greater monthly payments, so the lender will seek assurances that you can handle the financial commitment. As a result, it could be more challenging to be approved for a 15-year mortgage than a 30-year one.



Pro: A quicker rate of home equity accumulation is guaranteed.

It is possible to expedite the process of building equity in your home by paying down your mortgage twice as fast. It will be easier to refinance your mortgage if better rates become available, if you need money for home improvements, or if you want to acquire an investment property.


Your home's equity will increase more rapidly during the course of a 15-year mortgage. What you have built up in equity in your home is what you can rightfully call yours. The equity is the amount of money you have left on your mortgage, less the value of your house.



Pros and Cons of a 30-Year Mortgage

A standard 30-year mortgage entails making monthly payments to the lender totaling the loan's principal and interest over the course of 30 years or until you sell the house and pay it off earlier, whichever comes first. You can also have extra payments on your principal if you have the budget.



Pro: Lower monthly payments

There is a lot of variation in family budgets. Expenditures on things like tuition, books, food, utilities, and the urge to save and invest might fluctuate from month to month. With the money you save each month on your mortgage, you'll have more for other expenses like retirement, college savings, and house upkeep.


Due to its lower monthly payment, the 30-year mortgage has long been a favorite among homeowners. Despite paying twice as much interest throughout the course of the loan (compared to a 15-year term with a higher mortgage payment) and making payments for twice as long, the benefits of a reduced monthly payment are hard to deny.



Con: A higher monthly payment of interest rate.

Although there is a low monthly payment for this, there will be more interest accrued over the course of a lengthier loan period. A 30-year mortgage term has a higher interest rate than a 15-year mortgage because of the longer period over which the loan must be repaid. More money will be paid back over the course of the loan's lifetime compared to a 15-year mortgage with the same pay interest rate.



Pro: You might be able to afford a larger home.

Compared to a 15-year mortgage, a 30-year loan might make it possible to purchase a larger house and lot. With 30 years to make your mortgage payments, taking out a larger mortgage can be more affordable and help you buy a more spacious property. If you only have 15 years to repay the debt, it may not be doable.


Regardless of which mortgage term you choose for your home loan, it's important that you have a flexible payment scheme to pay it, including the down payment for your dream house.


Lumina Homes, the trusted provider of affordable house and lot for sale in the Philippines, offers each Filipino family and individual flexible payment options that will best suit their needs, budget, and lifestyle. They can now select whether they prefer a bank home loan or in-house financing. Lumina Homes also launched its first Bankathon event to help Filipinos get the right mortgage term for them.


Schedule a site-tripping on the Lumina Homes community near you and physically check out our various affordable house and lot models for your home investment, such as townhouses, duplexes, and single firewall units.

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