top of page

How Physicians Should Decide Between 15-Year or 30-Year Mortgage or ARM

House hunting in this market is already stressful, let alone trying to navigate all of the financing options for your mortgage that are available to you as a doctor. The choices can seem overwhelming: physician mortgage loan or conventional mortgage loan, fixed versus variable rates, 15 year mortgage versus 30 year mortgage versus ARM, which bank to choose, and more. We often see questions on our communities about how to choose between these options.  This article will cover the pros and cons of 15-year and 30-year mortgages and ARMs, each of which have advantages and disadvantages. The length of mortgage which will be best for you will depend on factors such as your financial situation, how long you plan to live in the house, current market interest rates, what else you’d do with that money, and more. We cover these factors in more depth below to help you decide.

Disclaimer/Disclosure: This page contains information about our sponsors and/or affiliate links, which support us monetarily at no cost to you. These should be viewed as introductions rather than formal recommendations. Our content is for generalized educational purposes. We are not formal financial, legal, or tax professionals and do not provide individualized advice specific to your situation. You should consult these as appropriate and/or do your own due diligence before making decisions based on this page. To learn more, visit our disclaimers and disclosures.


Factors physicians should consider when deciding between a 15- or 30-year mortgage


Quick Links




Resources


Looking for a mortgage lender to help secure your home purchase? We have partnered with the following mortgage loan sponsors to help our physician community.


Conventional Mortgages & Refinancing Sponsors

Credible: Credible has partnered with Physician Side Gigs to offer options for primary mortgages and mortgage refinancing. Explore options at through our affiliate link.  NMLS #1681276, in all states except NV, NY, UT,  and WA.

Physician Loan Mortgages Sponsors

Fifth Third Bank: Tony Lupescu (tony.lupescu@53.com) does physician loans.  He can do loans in Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North Carolina, Ohio, South Carolina, Tennessee, and West Virginia. NMLS #224410.

 

Central Bank of the Midwest: Brian Smith (brian.smith@centralbank.net) does physician loans in Arkansas, Colorado, Florida, Illinois, Iowa, Kansas, Missouri, North Carolina, and Oklahoma.  NMLS  #1452834.

Wintrust Mortgage: Garrett Larkin (glarkin@wintrustmortgage.com) and his associates do physician loans in Arizona, California, Florida, Illinois, Indiana, Iowa, Minnesota, Montana, North Dakota, and Wisconsin.  NMLS #945946


Learn more about physician mortgages.



15-Year Term Mortgage Overview


A 15-year mortgage, as the name suggests, is a mortgage that you pay off over the span of 15 years. It’s half the length of a 30-year mortgage, which means the lender will receive the entirety of the amount they loaned you in half the time. This quicker payback is generally less risky for lenders and comes with less inflation, so they typically offer a lower interest rate on 15-year mortgages.


Paying off your mortgage in 15 years can be a benefit for physicians looking to be debt free as soon as possible for full financial independence and possible retirement. Plus, the lower interest rate and faster payoff mean that over the life of the loan, you pay less in interest to the bank than you would with a 30-year term mortgage, allowing you to lose less of your hard earned income to the lender.



30-Year Term Mortgage Overview


A 30-year mortgage is a mortgage that you pay off over the span of 30 years. Since the same amount takes twice as long to pay on a 30-year mortgage than a 15-year, your monthly payment to the lender will be less. Because it takes twice as long to pay off, however, the amount of interest you pay to the lender for the privilege of borrowing their money will usually be significantly more.


A 30-year mortgage can be beneficial for early career physicians, especially those who have a lot of their monthly income already allocated to other debt, such as student loans. With a lower monthly payment, physicians can often achieve the dream of homeownership earlier with a 30-year mortgage than a 15-year loan, and afford to buy a bigger house than they would be able to with the larger payments for the 15-year mortgage.




Conventional Fixed-Rate Mortgages


For the majority of our discussion, we’ll be looking at fixed-rate mortgages, where the interest rate remains constant over the entirety of the loan’s length. With a fixed-rate mortgage, you lock in your interest rate when you are pre-approved or approved for the loan and have the same monthly payment until your mortgage is paid off (unless you decide to pay extra on the loan or refinance the mortgage because you find a lower rate).



Differences Between a 15-Year or 30-Year Mortgage


There are five big differences when it comes to comparing a 15- and 30-year mortgage:

  • Length of time until payoff

  • Interest rate

  • Monthly payment

  • Amount of interest paid over time

  • Corresponding total cost of the loan


Payoff Length

Interest Rate

Monthly Payment

Interest Paid

Total Cost

15-Year

Lower

Higher

Lower

Lower

30-Year

Higher

Lower

Higher

Higher


If you can afford the higher monthly payment, a 15-year mortgage can certainly pay off financially. But remember, buying a house isn’t a completely financial decision. Having a place to call home after years of bouncing around from college to med school to residency, and even between your first few attending positions, might leave you antsy to put down roots. Paying for the privilege of owning your first home can be worth it, and in general, most people don’t see their primary homes as investments.


One important note to consider is that most mortgages can be paid off early, so you can pay off a 30 year loan in 15 years or less if you’d like. They can also be refinanced, meaning that if interest rates drop, you can reach out to one of our mortgage lenders for physicians to lower your interest rate, which can reduce the total cost of your loan significantly.


As you progress through your personal financial journey, you almost always have the option to make additional payments toward the principal balance of your mortgage, so it’s important not to not feel ‘house poor’ if you think the payment for your 15 year mortgage will stretch your budget too thin. For example, if you think you can make a 15-year mortgage payment but it’s tight, you may want the additional breathing room monthly that a 30-year mortgage offers, but you could pay it like a 15-year mortgage, which would still greatly reduce the total cost of loan.




15-Year or 30-Year Mortgage Cost Comparison


Let’s use an example to help highlight the differences when comparing the cost of a 15- versus 30-year mortgage. The average mortgage loan in the US is around $350,000.


At the time of this writing in January 2024, potential interest rates for this loan with a good credit score would be around 7% for a 30-year fixed or 6.5% for a 15-year fixed rate.


You can find amortization schedule calculators on the internet that can help you run the cost comparison for the particular loan balance and interest rates you’re considering and have been offered. For our example, a 15-year versus 30-year might look like:


Comparing the cost of a 30-year versus 15-year mortgage


Pros and Cons of a 15-Year Mortgage


The cost comparison example above highlights one of the biggest advantages of a 15-year mortgage–the potential to save a lot of money in interest to your mortgage lender. While the 15-year mortgage pays off twice as fast as a 30-year mortgage, you’ll notice the monthly payment isn’t twice as much, thanks to how much you save in interest over the life of the loan. With our example case, the difference is almost $290,000, which is more than half of the loan amount.


With a lower interest rate and a quicker payoff timeline, you can build up equity in your real estate purchase a lot sooner with a 15-year versus a 30-year mortgage, which can also increase your net worth and accelerate your pathway towards being debt free. This is particularly appealing to those looking to decrease their monthly financial obligations as they work their way to FIRE: financial independence, retire early.


The biggest disadvantage of a 15-year mortgage is the higher monthly payment demonstrated above. While this helps you knock out the mortgage sooner, it can also limit the size and location of the property you want to purchase, as well as the amount of money you have available in your budget to invest or spend elsewhere. To keep the payment equal to what you could afford on a 30-year mortgage, you would either need a higher down payment on the same house or to settle for a house that is cheaper to lower your mortgage amount and thus the corresponding payment. We are big believers that avoiding physician burnout means that you have to take a balanced approach that allows you to enjoy the journey and not just delay gratification forever, so be careful to balance your financial goals with your personal goals.


Advantages of a 15-Year Mortgage

  • Save a ton in interest over the life of the loan

  • Lower interest rate than 30-year mortgage

  • Build up equity quicker


Disadvantages of a 15-Year Mortgage

  • Higher monthly payment

  • May require a smaller house or a home in a less ideal location

  • Less cash available to invest monthly



Pros and Cons of a 30-Year Mortgage


One of the biggest advantages of a 30-year mortgage is particularly important to graduating residents and new attending physicians–a lower monthly payment that can make buying a home more affordable, especially while you’re early in your career. With a lower monthly payment, you may be able to afford the more ideal house that you wanted but couldn’t afford on a 15-year mortgage. Just keep in mind that the lower monthly payments may make you buy a house more expensive than you ought to, which can leave you house poor and/or lead to financial stress from all the additional costs that come with owning a bigger house (taxes, insurance, maintenance, unexpected repairs, etc.).


While the 30-year mortgage can drop your payment significantly, allowing you to jump into homeownership sooner, it comes at the cost of a higher interest rate and overall amount of interest you pay to the lender.


Depending on your interest rate, you may not see much traction in paying down your loan and building equity until a good 10 years into your mortgage. This means if you move sooner than that, you could take a loss on the house purchase, especially once you factor in closing costs at the purchase and sale.


Additionally, the more you pay for a house and the less you build in equity, the more subject you are to having to come to the closing table with money if market conditions shift significantly and you aren’t able to sell the house for the same or greater price than you bought it for, 


Learn more on our guide to physician mortgages.


Advantages of a 30-Year Mortgage

  • Lower monthly payment

  • Makes homeownership more accessible

  • Can allow you to invest more into retirement


Disadvantages of a 30-Year Mortgage

  • Higher interest rate

  • Can lead you to becoming house poor

  • Builds up equity slower, which can be risky if market conditions change and you have to sell your house at a lower price than you bought it for

  • Costs significantly more over the life of the loan



Which Is Better: 15-Year or 30-Year Mortgage


The question of which is a better fit for you, the 15-year or 30-year mortgage, depends on your personal situation.


If you work short-term locums contracts and your income is highly variable, the lower payment on a 30-year mortgage can be a lot easier to manage between contracts. If you still have a high student loan balance that eats a lot of your discretionary income every month and have less in savings, a 30-year mortgage may allow you to get into homeownership sooner.


If you like to move every few years, a 15-year mortgage with a lower interest rate and faster building of equity can increase your chances of making a profit off your house sale when the time comes to upgrade your living situation or move to a new state. Additionally, if you are not good at budgeting and you worry you are just going to throw the money saved in monthly mortgage payments at a lot of unnecessary discretionary expenses in your budget, you will slow down your pathway to financial independence by decelerating the growth of your net worth. For those who hate debt and are going to pay off the mortgage as quickly as possible regardless, you may as well take the lower interest rate that the 15 year mortgage typically offers.


Which is better, a 15-year or 30-year mortgage, based on different situations


Alternatives to 15-Year and 30-Year Fixed Mortgages


While conventional, fixed-rate mortgages with 15- or 30-year terms are the standard in the industry, there are alternatives.


40-Year Fixed Mortgages


A 40-year mortgage is like a conventional, fixed-rate 15- or 30-year rate mortgage, but with longer terms. Similar to comparing a 30-year to a 15-year, the 40-year will have a smaller monthly payment than a 30-year mortgage, but will cost you more over the life of the loan.


Since we already warn about becoming house poor with a 30-year mortgage, we caution against a 40-year mortgage, even in high COL areas. It may make more sense to save up a higher payment for an extra year for a 30-year mortgage instead.


The Adjustable Rate Mortgage (ARM)


Adjustable rate mortgages (ARMs) are the other common option for mortgages versus a fixed-rate mortgage. With an ARM, you typically have a 30-year mortgage, but the interest rate isn’t fixed over the entire 30 years like a conventional mortgage. Instead, you have a fixed interest rate for a designated period at the beginning of the loan, then the interest rate adjusts to market rates at set intervals. If rates rise, your interest rate rises, increasing your monthly payment. If rates fall, your monthly payment lowers, as does the overall cost of your mortgage over the life of the loan.


Theoretically, ARMs are the most economical financial decision you can make as they adjust to market conditions continually instead of locking you in for over a decade. That said, even big wigs in the financial industry typically have fixed-rate mortgages. Why? You often don’t want to gamble on what the market may do with one of your largest assets, especially when you need to live in it.


Physicians who are already financially stable may want to seize the opportunity of a lower mortgage rate in the future, knowing they can ride the turn if rates increase instead. If you can afford an increase in your interest rate, it may be worth the risk, so long as you’re on strong financial footing and can weather an inflation storm.  We’ve seen many examples lately of physicians encountering financial stress because the amount of money they’d allotted in their budget for their primary home or in their pro forma for their investment property for monthly mortgage payments has shot up overnight because of how quickly rates have gone up. This could lead to you having to quickly sell your house or investment or worse, so if you decide to take an ARM, be okay with the risk of having to make much larger payments or sell if you need to, and plan the rest of your finances accordingly.


If you know you will only be staying in a home for a length less than the introductory fixed period and the ARM offers a favorable rate, it can be a solid option as well. Just make sure you’re honest about moving expectations and, if you’ll only be around for a few years, that you’ll make up the closing costs and mortgage interest in time, similar to a 30-year mortgage.


Learn more on our guide to physician mortgages.



Conclusion


There’s no clear-cut answer of which is better in the 15-year versus 30-year mortgage showdown, as it is very dependent on your individual financial plan and budget. We hope the comparison of pros and cons above, along with the example scenarios, help you determine which might be the better fit for you.


Remember, as your situation changes and/or interest rates change, you always have the opportunity to refinance your mortgage if it’s advantageous. While people often look for their forever home, your mortgage isn’t a forever decision. It is a big one, however, so take the time to compare the different options before deciding.



Disclosure: This page contains an advertisement from a third-party advertiser, Credible Operations, Inc., which is licensed as a mortgage broker in some, but not all, states (see https://www.credible.com/a/mortgage/licenses). Information contained herein is provided for illustrative purposes only, without any representations or warranty as to its accuracy or applicability to you. All credit requests are subject to review and approval, and your actual loan terms will depend on your financial situation. Credible Operations, Inc. is solely responsible for the content of its advertisement and the services it provides.

bottom of page