Across the United States 88% of home buyers finance their purchases with a mortgage. Of those people who finance a purchase, nearly 90% of them opt for a 30-year fixed rate loan.
Buying a home is likely one of the biggest financial decisions you’ll make in your life. And when taking out a mortgage loan to finance your home purchase one of the most important choices is deciding on the loan term also known as the length of the loan. But what exactly is the average length of a home loan these days? Let’s break it down.
What Determines the Length of a Mortgage?
The term of a mortgage refers to the number of years it will take to pay off the loan. Common mortgage terms available are 10, 15 20 and 30 years.
The most popular option is the 30-year fixed rate mortgage. About 70% of all mortgages issued are 30-year loans. The 30-year term helps keep monthly payments more affordable, allowing more homebuyers to qualify.
Shorter term mortgages like 10 and 15 years have higher monthly payments but build home equity faster and cost less in interest over the life of the loan. The 15-year mortgage is the second most common behind the 30-year.
Ultimately the loan term you choose depends on factors like
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Your budget – Can you afford the higher monthly payment of a shorter term?
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How long you plan to stay – Shorter terms build equity faster but only make sense if you stay put.
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Interest savings – Shorter terms come with less interest paid over time.
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Mobility – Longer 30-year loans provide more flexibility if you may move.
The Pros and Cons of Different Loan Terms
Let’s explore the key pros and cons of different popular mortgage term lengths:
30-Year Mortgage
Pros
- Lower monthly payments
- Pay off home slower
- Move without penalty
- Refinance easily
Cons
- Pay significantly more interest
- Slower to build home equity
- Higher interest rate than shorter terms
15-Year Mortgage
Pros
- Pay off mortgage faster
- Build home equity quickly
- Lower interest rate
- Pay far less interest
Cons
- Higher monthly payments
- Harder to refinance or move
- Less payment flexibility if money tight
10-Year Mortgage
Pros
- Pay off home rapidly
- Lowest interest rate
- Build substantial equity
- Total interest savings
Cons
- Much higher monthly payment
- Little flexibility if money tight
- Large payments needed for 10 years
Which Loan Term Is Right for You?
Here are some tips on factors to consider when choosing your ideal mortgage term:
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How long you plan to stay – If less than 5-7 years, lean shorter. If unknown or very long-term, go longer.
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Your budget – Make sure you can afford the monthly payments comfortably. Don’t stretch yourself too thin.
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Life plans – Consider major expenses like college tuition or retirement coming up when budgeting.
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Interest savings – Weigh if the interest savings outweighs the payment jump of a shorter term.
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Future moves – Longer terms provide flexibility if you may move before paying off the mortgage.
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Discipline – Can you commit to higher payments of a shorter term for the long haul?
Sample Mortgage Terms and Payments
To make things more concrete, here is an example of estimated monthly payments on a $300,000 mortgage based on different popular loan term lengths:
| Loan Term | Interest Rate | Monthly Payment |
|---|---|---|
| 30-year | 3.5% | $1,264 |
| 20-year | 3.25% | $1,663 |
| 15-year | 3.125% | $1,984 |
| 10-year | 3.0% | $2,684 |
As you can see, the longer the term, the lower the monthly payment. But you pay more interest over time. The shorter the term, the faster you pay off the home but your payments are higher.
Tips for Choosing the Right Loan Term
Here are some final tips when weighing mortgage term options:
- Get rate quotes for different terms to compare specifics.
- Use a mortgage calculator to see payments for each term.
- Ask your lender for a full breakdown of costs.
- Pick the shortest term you can afford comfortably.
- Remember shorter terms have interest rate incentives.
- Refinance later if your situation changes.
- Don’t stretch your budget too thin. Leave room for other expenses.
The average length of a home loan today tends to be around 30 years. But carefully considering your personal financial situation, future plans, and lifestyle will help you zero in on your ideal mortgage term. The 30-year option isn’t necessarily right for everyone.
40-Year Fixed Rate Mortgage
40-year mortgage rates are usually slightly higher than the traditional 30-year fixed mortgage, but the monthly payment tends to be lower due to the extended term. This loan is a good alternative for borrowers who do not desire to have an adjustable rate mortgage but still wants or needs the low monthly payment that only comes with this extended term loan program. Customers pursuing the 40-year home loan are the ones who are looking for one of two things. They are either searching for a lower payment that allows them to afford a more expensive house, or they simply want a lower payment without having to sign up for an adjustable rate mortgage.
Highlights of the 40 year fixed rate mortgage are:
- The term is fixed for a period of forty years no matter the changes in the market.
- The potential for a lower monthly payments than with a 30-year fixed home loan.
- Purchase a larger home than what can be afforded with a traditional 30 year loan.
- Low payments leave extra money for other expenses, or perhaps to be invested in other markets.
15 Year Fixed Rate Mortgage
A 15-year fixed rate mortgage allows the homebuyer to own their home free and clear in a 15 year period. While the monthly payments are a little higher than a 30-year mortgage, the interest rate on the 15-year mortgage is a little lower. The homebuyer also pays less than half of the total interest of the traditional 30-year mortgage. A 15 year fixed rate mortgage allows younger homebuyers with the income to meet the higher monthly payments to pay off the house before their children enter college. This kind of mortgage allows them to own more of their home faster with this mortgage. Homebuyers who are established in their careers tend to have higher incomes and they desire to own their homes before they retire. These are the types of people who may prefer this kind of mortgage.
Some advantages of the 15-year fixed rate mortgage are:
- The homebuyer owns their home in half the time it would take them to own it through a traditional mortgage.
- The homebuyer saves more than half of the amount of interest paid in a 30-year mortgage.
- Lenders usually offer this type of mortgage at a lower interest rate than the interest rate of a 30-year loan.
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FAQ
Is it better to get a 15-year mortgage or pay extra on a 30-year mortgage?
How long is a typical home loan?
Are most home loans 30 years?
Do 20-year mortgages exist?
What is the average length of a mortgage?
The average length of a mortgage is 30 years, which keeps monthly payments affordable. The savings on a loan with a shorter term are substantial, but many homebuyers and refinancers can’t abide the higher payments that come with a faster loan payoff.
How long does a mortgage loan last?
Many lenders offer terms in 5-year increments that range from 10 – 30 years. The monthly mortgage payment and the interest you pay on the loan will largely depend on which mortgage term you choose. Let’s see what this might look like IRL. A borrower we’ll call Sam has taken out a $300,000 mortgage loan at a 4% interest rate.
How long does a 30-year mortgage last?
The average length of a mortgage is 30 years, but that’s not the amount of time that most borrowers will keep the loan. Homeowners only stay in a home for eight years on average, and many refinance their home loans. So most folks will sign up for a 30-year mortgage but keep it for a far shorter time. Why 30 years?
What is the average size of a home purchase mortgage?
The average size of a home purchase mortgage obtained through the LendingTree platform in the 12 months ending in October 2023 was $224,398. Average loan sizes were highest in Hawaii ($464,994), the District of Columbia ($355,986) and Massachusetts ($309,490). They were lowest in West Virginia ($150,245), Iowa ($153,405) and Michigan ($160,707).