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3 Steps to Deciding a 30- vs. 15-Year Mortgage

Tickers in this article: RATE

BOSTON (TheStreet) -- Today's record-low mortgage rates are giving consumers the choice of two great options -- 30-year mortgages that charge just over 4% interest or 15-year loans with rates nearly down to 3%.

"You really can't go wrong," says Greg McBride, senior financial analyst at interest-rate tracker Bankrate.com(RATE) "Rates are at record lows on both products."

Thirty-year or 15-year mortgage? The right answer will depend on your circumstances, but some factors can held decide which way to go.

Bankrate.com's latest weekly survey shows that average U.S. rates fell to 4.05% as of this week for 30-year fixed-rate mortgages, and 3.25% for 15-year fixed loans.

Both are all-time lows, which pretty much means the only thing cost-conscious homebuyers and refinancers need to decide is which type of loan to get.

Should you lock in the best 30-year rate in history and enjoy its benefits for three decades or grab a 15-year mortgage's rock-bottom rate but pay the money back twice as fast?

McBride says there's no single answer that covers every consumer's individual situation.

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"The right answer will depend on your personal circumstances," he says. "That's why they call it personal finance."

Here's a look at some factors borrowers should consider in deciding which way to go:

Affordability
"The first thing to look at is the difference in monthly payments between a 15-year mortgage and a 30-year loan of the same size," McBride says. "You want to look at what that 15-year payment will be and decide if you can swing it. If you can't, that will decide it."

Fifteen-year mortgages do charge lower interest rates than 30-year loans -- but carry higher monthly payments because you have to pay all principal back in half the time.

For example, borrowing $300,000 for 15 years at this week's 3.25% average rate means you'll have a $2,108 monthly mortgage payment (excluding the effect of any origination fees).

That's nearly 50% higher than the $1,441 you'd pay if you take out the same-sized loan for 30 years at today's 4.05% average rate (again, ignoring origination fees).

Not everyone can afford such higher payments -- or convince the lender reviewing a mortgage application to "greenlight" such a loan.

You can check out your potential monthly payments by plugging in specifics from your own situation into TheStreet's mortgage calculator .

Your overall finances
Using a 15-year mortgage to pay off your home definitely saves money, but means you'll have less cash each month for other financial goals that many people now skip.

For instance, McBride says less than one U.S. household in four has built up a six-month emergency supply of cash that experts recommend for emergencies. Even fewer are maxing out contributions to tax-advantaged retirement accounts such as 401(k)s, he says.