The reason Orman favors a shorter term loan is simple: It's cheaper. In March, "the average rate for a 30-year fixed rate was 4.3 percent, while a 15-year [had] an average fixed rate of just 3.5 percent," she wrote. "That's nearly a percentage point less!"
In 2013, the 15-year fixed rate mortgage interest rate dropped to just 2.5 percent, its lowest point ever, Freddie Mac reported. On Tuesday, the 30-year fixed rate mortgage is at 3.8 percent, while the 15-year fixed rate mortgage is at 3.14 percent, according to Bankrate.
A 1 percent variance can actually make a huge difference. On a $250,000 loan, paying 4.3 percent for 30 years amounts to $195,000 in interest, according to Orman, while 15 years at 3.5 percent comes out to only $72,000. That's more than $100,000 in savings.
The shorter term loan amounts to huge savings when the rates are similar as well. On a $250,000 mortgage, you'll pay $78,000 in interest over the full term of a 15-year plan and $169,000 for a 30-year plan, even if they both offer 3.8 interest rates.
However, a 15-year mortgage isn't the right choice for everyone. While the lower interest rate saves money in the long term, the monthly payments are much higher, which simply isn't possible for many families.