Does a 30-year mortgage make sense in 2022?

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You might want a 30-year loan for a few key reasons.


Key points

  • You will generally pay more interest on a 30-year mortgage than on a shorter-term loan.
  • A 30-year loan could also mean lower, more affordable monthly payments.

If you’re looking to buy a home in 2022, you might be facing a challenge. We are starting the year with house prices at high levels. And until more inventory hits the real estate market, that’s unlikely to change.

To complicate matters, mortgage rates have already increased quite significantly this year. In fact, at the time of this writing, the average interest rate for a 30-year loan is 3.920%.

However, historically speaking, a rate below or around 4% is very competitive. But in the context of the rates that borrowers enjoyed from mid-2020 to the end of 2021, that’s high. Also, we don’t know if mortgage rates will continue to climb in 2022 and how far they will reach as the year progresses.

In light of this, you might be wondering if a 30-year mortgage is your best bet, or if it pays to take out a shorter-term loan to get a lower interest rate. And the answer? It depends.

Why You Might Need a 30 Year Loan Today

In December 2021, the median price of an existing home was $358,000. Now let’s say you are able to make a 20% down payment on that total, or $71,600. That leaves you with a mortgage of $286,400. If you take out a 30-year mortgage at the current average rate, that leaves you with a monthly principal and interest payment of $1,355.

Meanwhile, if you take out a 15-year mortgage, you could get a much lower interest rate on your loan. Currently, the average 15-year mortgage rate is 3.095%. This loan will have you spending a total of $71,993 in interest over the course of paying off your home, as opposed to the $201,327 you’ll spend in interest with a 30-year mortgage. That’s a difference of over $129,000.

However, with a 15-year mortgage, you will also have to pay a monthly principal and interest payment of $1,991, as opposed to $1,335 for a 30-year mortgage. And that’s a payment you may not be able to afford.

That’s why a 30-year mortgage may be your best option if you’re buying a home this year. The higher monthly payments that come with a 15-year loan may not suit your budget.

You’re not stuck forever

You may be keen to get as low an interest rate as possible on your mortgage, so the temptation may arise to take out a 15-year mortgage. But if you think those higher monthly payments are overkill, then that’s a route not worth taking.

If you’re not happy with the interest rate you’re getting on a 30-year loan, remember that you can always refinance your mortgage if rates go back down. If, say, in two years your income increases significantly, you may be able to save money by refinancing your 30-year mortgage into a 15-year loan.

Either way, taking out a 30-year mortgage this year isn’t a bad decision. And chances are, that’s the route a lot of buyers are going to end up taking.

A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage

Chances are, interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.

Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.

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