A 15-year mortgage usually comes with a lower interest rate than a 30-year, often about half a point to three-quarters of a point lower. A 30-year mortgage comes with a lower required payment. If you plan to pay the house off fast with Dynamic Banking either way, which one should you actually take? Dynamic Banking means running your income through a line of credit and moving lump sums from it to the mortgage.
Run it on a $350,000 loan. Say the 15-year is offered at 5.875% and the 30-year at 6.625%. These rates are only for the example, and the gap between them moves. The 15-year payment comes to about $2,930 a month. The 30-year payment is about $2,241, which is $689 less.
Now pay the 30-year as if it were a 15-year, sending $2,930 every month. It's paid off in a little over 16 years, and the total interest comes to about $223,000. The 15-year costs about $177,000 in interest. With the same monthly outlay, the 30-year costs roughly $46,000 more, because its higher rate applies the whole way down.
That $46,000 buys one thing: the right to drop back to $2,241 whenever you need to. If your income drops, if a big repair hits, or if you'd rather point extra money at a line of credit balance for a few months, the 30-year lets you pay less without falling behind. The 15-year doesn't. Miss that $2,930 and you're late, even if you've already prepaid a full year of extra principal. A line of credit gives you the same kind of room, which is a big part of what a line of credit adds over extra payments.
The lower required payment also helps you qualify for credit. Lenders count your mortgage payment in your debt-to-income ratio, which means your monthly debt payments divided by your gross monthly income. A smaller required payment leaves more room to qualify for the home equity line of credit, or HELOC, that Dynamic Banking runs on.
So who should take which? If your income is steady, you'd make the higher payment anyway, and you have savings to cover a rough stretch, the 15-year is the cheaper loan by a wide margin. If your income moves around, you're self-employed, or you want room to run chunks through a line of credit, the 30-year costs more but leaves you in control of the payment. Either way, stress-test the rate on any line of credit you plan to lean on, since a HELOC rate floats.
Ask your lender for a 15-year and a 30-year quote on the same day, with the same points, which are upfront fees paid to lower the rate, and the same closing costs. Subtract the two payments, and be realistic about whether you'd use that monthly difference for chunks or end up spending it.