Here's Why You May Not Want a 15-Year Mortgage -- Even if You Can Afford One

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The average 30-year mortgage rate as of this writing is 6.94%, according to Freddie Mac. And while that's not nearly the highest mortgage rate in history, it may be a higher rate than what you want to pay.

One simple way to snag a lower interest rate on a mortgage is to lock in a 15-year loan instead of a 30-year loan. As of this writing, the average 15-year mortgage rate is 6.24%. So if you can afford the higher monthly payment that comes with a 15-year loan, it could be worth getting one.

But before you rush to sign a 15-year mortgage, realize that not committing to those higher monthly payments could be a better bet for these two reasons.

1. You can potentially make more money by investing

Let's say you're looking to sign a $200,000 mortgage at today's rates. With a 30-year loan, you're looking at a monthly payment of $1,322 for principal and interest. With a 15-year loan, that payment rises to $1,714 -- a difference of $392.

With the 15-year loan, though, you're paying $108,476 in interest all in. With the 30-year loan, your total interest cost amounts to $275,927. So in theory, a 15-year mortgage could save you $167,451.

More: Check out our picks for the best mortgage lenders

However, let's say you sign the 30-year loan but invest the $392 a month you're not spending on housing in the stock market for 30 years. The market's average annual return, as measured by the S&P 500 index, has been 10% over the past half-century. If you snag that same return in your portfolio, you could grow your balance to about $773,800. That's a gain of over $632,000, compared to saving $167,451 on mortgage interest.

2. You have more flexibility if your financial situation changes for the worse

You may be able to afford the higher payments that come with a 15-year mortgage today. But what if your financial situation changes and your income declines?

If you're laid off at some point, you may be forced to take a lower-paying job. Or, you might willingly decide to take a lower-paying job because you're too burned out to keep grinding away at your current one.

You may also end up with non-housing expenses that are larger than expected. Child care costs today, for example, are exorbitant. If you wind up having more kids than planned, that's an expense that could seriously eat into your budget.

The benefit of signing a 30-year mortgage is that it comes with lower payments than a 15-year loan. You could choose to pay more into your mortgage, if your situation allows for that. But you don't have that obligation, which gives you more flexibility.

It's easy to see why you may find a 15-year mortgage appealing. After all, it's nice to lock in a lower interest rate on a home loan and save loads of money that way. But just because you can afford a 15-year mortgage doesn't mean you should get one. You may find that you're better off with a 30-year loan, even if it comes with a higher interest rate attached to it.

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