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There are significant financial and lifestyle benefits that can occur when a homeowner obtains a mortgage that is shorter than 30 years or pays off a mortgage faster than 30 years.


A typical mortgage before 1930 typically had a 3 to 5-year term and did not have an amortization period. Instead, mortgages involved paying a series of interest-only payments with one large balloon payment at the end of the term, which was the entire principal of the loan.  Unless the homeowner was able to convince the lender to renew the mortgage, they typically defaulted on the loan.  This made mortgage lending risky.

The Federal Housing Administration (FHA) was created in 1934 and was built to protect lenders and reduce lending risk. FHA created a number of valuable mortgage services. They created the 30-year mortgage, created Amortization which involves paying off both interest and principal amounts with each payment and reduced the down payment required on new home sales. The FHA began offering 15 to 30-year loans, stretching out payments and making it more affordable for medium-income individuals to buy a home.


The benefit of a mortgage with a shorter than 30-year amortization, is that less money that goes to interest and more money is applied to principal. As a result, the balance is paid down faster, and the mortgage is paid off in less time.  For example (Assume a mortgage with an original balance of $250,000).


Total Interest Paid                                                        After 5 Years                      After 10 Years

30 Year Mortgage                                                         53,900                                 102,200

20 Year Mortgage                                                         48,700                                 86,900

15 Year Mortgage                                                         43,600                                 72,300

As can be seen, the interest saved is significant. However, what is more noteworthy is what happens to the mortgage balance with mortgage shorter than 30 years.

Mortgage Balance                                                        After 5 Years                      After 10 Years

30 Year Mortgage                                                         227,900                              200,200

20 Year Mortgage                                                         205,800                              151,100

15 Year Mortgage                                                         182,700                              100,500

The equity build-up is much faster with a shorter mortgage term. The payments for a mortgage with a term shorter than 30 years, will be more than what is required for a 30-year mortgage.  However, the payments go to building equity in the property.


  1. Paying off your mortgage can give a strong sense of financial stability;
  2. Flexibility in your monthly budget
  3. Protection against an unstable housing market and/or a loss of income
  4. Peace of mind of knowing and feeling that you are in charge of your family’s finances.
  5. The freedom to pursue other life choices


If you want to understand the benefits of obtaining a shorter term mortgage give us a call and we can run the numbers for you to see if it fits your financial life and your long term goals.