I’ve noticed quite a bit of chatter on social media recently, suggesting you shouldn’t take out a 30-year loan term. The argument goes that paying a loan over three decades results in paying far more interest. And yes, that’s mathematically correct. Will I pay more or less interest on a 30-year loan? The simple answer is more interest – but there’s much more to the story.
People advocating for shorter loan terms often point out that a 15 or 20-year term means you’ll pay substantially less interest over the life of the loan. Again, from a pure numbers perspective, they’re right. So, is a shorter loan term better? Not necessarily, and here’s why.
The real benefit of a 30-year term
I recently had a client tell me, “I don’t want to pay more than the minimum on a 30-year loan. All I want to do is pay the minimum on a 20-year loan.” His intention was clear – he wanted to pay off his mortgage in 20 years.
What he didn’t realise was that in either scenario, his payments would be the same if he chose to pay the 20-year amount on a 30-year loan. Can I pay my mortgage off faster than the loan term? Absolutely – and many prudent homeowners do exactly that.
“But I’ve read that a shorter loan term is better,” people often say.
What I tell them is this – at a certain level, the loan term is somewhat irrelevant. If you want to pay your loan off faster, it really comes down to one of two things – pay more, and… pay more.
The bank certainly won’t object if you want to pay it off faster! They’d love to get their money back promptly, so they can lend it to someone else. It’s completely acceptable to set your payments at a higher level and pay off your mortgage much quicker than the term suggests.
How can you pay off your mortgage faster? There’s no magic formula—it’s simply about making higher or more frequent payments.
Why should I take out a 30-year mortgage?
Well, have you ever heard the saying, “’the road to hell is paved with good intentions’? My meaning is, that while you may genuinely intend to pay off your mortgage early (the good intention), life’s unpredictability might make that impossible (the unintended negative outcome).
If you take out a 30-year mortgage, and circumstances change and you need to reduce payments, you can simply revert to the lower minimum payment without bank approval.
However, if you initially choose a shorter term (like 20 years) and later need to extend it, you’re essentially asking the bank to increase its risk exposure. This requires a full reapplication process, which may be rejected—particularly problematic if your financial situation has worsened.
For example, if you’ve been paying $700 weekly on a 30-year mortgage when your minimum is only $250, you can immediately scale back payments during financial hardship. With a shorter-term mortgage, you’d need to request an extension from the bank when you’re already financially vulnerable. This kind of flexibility is invaluable when life throws you a curveball.
Interest-only vs principal repayments
Another option during financial strain is switching to an interest-only loan. This means you only pay the interest on a loan without reducing the principal, and your loan balance remains unchanged. The downside of this is that you’ll continue to owe the same original amount you borrowed, with no progress made towards paying off the debt itself.
But this is only a great option if you’re under unexpected financial hardship and you need a temporary reprieve.
Remember, with an interest-only arrangement, time keeps ticking. If you spend a year paying only interest, when you resume principal payments, you’ll have one year less to pay off the loan. Your payments will consequently need to be higher to compensate.
The smart approach works
- Go for as long a long term as the bank will stomach.
- At a bank that has the most flexibility you can find.
- Pay more than the minimum. How to pay your mortgage off faster? This is the most straightforward approach.
- And then if the you-know-what hits the fan, you’ve got room to wriggle.
I can’t say it enough – with a 30-year term, you’re giving yourself options. You can still pay off your loan as if it were a 15 or 20-year mortgage, but you’ll have the safety net of being able to reduce your payments without bank approval if needed.
So don’t let anyone convince you that a 30-year term is a poor choice. It might just be the smartest financial decision you make – providing maximum flexibility while still allowing you to pay off your mortgage as quickly as you choose. How long should I fix my mortgage for? That’s a separate but related question that depends on your individual circumstances and current market conditions.
Getting the mortgage in the first place is only half of what we do as mortgage advisors. The unseen but equally important part is keeping you financially secure when circumstances change. If life is throwing you curveballs, contact me for a chat, that’s what I’m here for.