The average length of a mortgage is 30 years, but that’s not the amount of time that most borrowers will keep the loan. Homeowners only stay in a home for eight years on average, and many refinance their home loans.
So most folks will sign up for a 30-year mortgage but keep it for a far shorter time. Why 30 years? It tends to keep monthly payments affordable.
Let’s review mortgage terms to help you decide what’s best for your situation.
Table of Contents
Key Points
• The average mortgage term in the U.S. is 30 years, though many homeowners refinance or move before completing this term.
• Homeowners typically stay in their homes for about eight years on average.
• A 30-year mortgage helps keep monthly payments more affordable for borrowers.
• Shorter mortgage terms, such as 15 or 20 years, significantly reduce total interest costs but increase monthly payments.
• The 15-year mortgage term is the second most common, offering a balance between manageable payments and total interest savings.
What Is a Mortgage Loan Term?
The term is the number of years that a borrower agrees to repay the total amount borrowed on a mortgage.
When choosing a mortgage term, a homebuyer or refinancer picks a term of, for example, 30, 20, 15, or 10 years, divided into monthly payments. A 30-year loan is divided into 360 monthly payments, and a 15-year loan is divided into 180 monthly payments.
Choosing a loan term is one of the most important considerations you’ll make during your home purchase or refinance. It will help determine the monthly payments and how much interest you’ll pay over the life of the loan.
Understanding how mortgage amortization works is a key part of this. A loan with a shorter term will result in a much lower overall interest cost but higher monthly payment.
An online mortgage payment calculator can help you find your desired monthly payment number.
First-time homebuyers can
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30-Year Mortgage Term
A 30-year mortgage term is the most common mortgage term by far. More than 70% of mortgages have a 30-year term, according to data collected from the Home Mortgage Disclosure Act.
Five years earlier, a Bureau of Labor Statistics survey found that 30-year mortgages represented 61% of mortgages.
The increase in the number of 30-year mortgages could be an indication of home affordability as buyers look to qualify for a mortgage.
With average 30-year monthly payments of nearly $1,950 nationwide in 2022, it’s no wonder borrowers usually choose the 30-year term over others. The National Association of Realtors® reported that statistic and that June’s affordability index figure was the lowest since June 1989.
Aspiring homeowners, even with first-time homebuyer programs, have faced sky-high home prices in a hot housing market whose future temperature remained uncertain.
20-Year Mortgage Term
The 20-year mortgage is far less common than a 30-year mortgage, and even less common than a 15-year mortgage, but could be considered the sweet spot between the two, offering substantial savings on interest costs compared with the 30-year loan.
After all, a mortgage loan that you’re not paying interest on for 10 years is bound to cost less. As a bonus, shorter-term mortgages tend to have lower interest rates.
Recommended: Mortgage Lender vs Servicer
15-Year Mortgage Term
With 9% of the market share, according to Home Mortgage Disclosure Act data, a 15-year mortgage is the second most common mortgage term.
Like 20-year mortgages, 15-year mortgages offer substantial savings on interest costs. The catch is you have a much higher monthly mortgage payment.
10-Year Mortgage Term
The 10-year mortgage term is found in both fixed- and adjustable-rate mortgages.
A fixed-rate 10-year mortgage is an accelerated mortgage that allows borrowers to build equity fast. Someone choosing traditional refinancing or cash-out refinancing might opt to pair a lower rate with a faster loan payoff.
A 10/1 adjustable-rate mortgage (ARM) is actually a 30-year loan most of the time, but the introductory period, when the rate may be lower than fixed-rate loans, is what holds appeal. A 10/1 has a fixed rate for 10 years, after which the rate will adjust every year.
More and more, you’ll see ARMs whose rates will adjust every six months (so a 10-year ARM will be offered as a 10/6), thanks to a new benchmark index.
The teaser rate for a 10/1 ARM is higher than that of other ARMs.
5-Year Mortgage Term? Not Exactly, but …
A 5/1 ARM is actually a 30-year loan most of the time, but the intro rate is the star attraction. A 5/1 ARM features a low rate for five years, after which the rate will adjust every year according to an index.
You’ll also see 5/6 ARMs, whose rate adjustments are based on the Secured Overnight Financing Rate, or SOFR, which replaced the London Interbank Offered Rate, or LIBOR. A 5/6 ARM rate can go up or down by one percentage point every six months. A 5/1 ARM rate can rise or fall by up to two percentage points each year.
For borrowers who are not planning to keep their home for long or for those hoping to refinance before the initial rate adjustment, a five-year ARM may make sense.
Recommended: Home Loan Help Center
The Takeaway
The average length of a mortgage is 30 years, which keeps monthly payments affordable. The savings on a loan with a shorter term are substantial, but many homebuyers and refinancers can’t abide the higher payments that come with a faster loan payoff.
Need a mortgage? SoFi offers a variety of terms. Scroll through the features of SoFi Mortgages for each category.
FAQ
What is the most common mortgage term?
The most common mortgage term is 30 years, according to Home Mortgage Disclosure Act data.
What is the longest mortgage term?
It may be possible to obtain a 40-year mortgage. Any mortgage with a term longer than 30 years is not considered a “qualified mortgage,” which means few lenders will offer a loan that risky.
Forty-year loan modification options for borrowers in distress are more common.
Are there 40-year mortgages?
Forty-year mortgages do exist, but they’re not considered qualified mortgages, which is a requirement for a mortgage to be sold on the secondary mortgage market to investors. This is ultimately what makes a mortgage affordable.
You can only get a 40-year mortgage from a portfolio lender, which is a lender that keeps the loan on its books.
Photo credit: iStock/Elena Katkova
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