By Sabrina Karl

The 30-year fixed-rate mortgage is about as American as personal finance gets. Few countries offer home loans with a long-duration fixed rate. Yet in the U.S., 80-90% of new mortgages are 30-year fixed-rate loans.

In distant second place is the 15-year fixed-rate mortgage. It’s probably most popular with refinancers, who have whittled down their loan balance for several years and can now afford to finance what remains over a shorter term.

The main reason people choose a 15-year loan is to enjoy a lower interest rate while paying off their house more quickly. This can be especially appealing to those wanting to retire their mortgage before they retire themselves. A lower rate with a shorter term also means the homeowner will pay less over the life of the mortgage.

But that simple arithmetic isn’t the only thing to consider. What the 30-year mortgage has going for it is its smaller monthly payments. This has two advantages. One, if the homeowner suffers a financial stress, like losing a job or becoming weighed down with medical bills, smaller monthly payments are easier to keep up.

Second, by committing less to your mortgage, surplus funds can be used elsewhere, like a child’s college education, or investments expected to out-earn your mortgage interest, as well as be easier to access than home equity. As with all things, money committed to any purpose involves an opportunity cost of where you could have put the money instead.

Interest rates matter, too. Right now, interest rates are rising. Though they’re still historically low over the long arc of mortgage history, they’re considerably higher than the last two years. When rates tanked in 2020, it became a terrific time to lock in a historically unheard-of rate for 30 years. But of course when rates increase, that advantage diminishes.