A 15-year mortgage has a much higher monthly payment than a 30-year one, but it saves an enormous amount of interest. On a $300,000 loan the difference is about $595 a month — and about $234,000 in total interest.
The comparison on a $300,000 loan
Fifteen-year loans usually come with lower rates than 30-year loans, often by around half a percentage point or more, because the lender gets its money back sooner. This example uses 6.5% for 30 years and 5.75% for 15 years.
| 30-year at 6.5% | 15-year at 5.75% | |
|---|---|---|
| Monthly principal and interest | $1,896 | $2,491 |
| Total interest paid | $382,633 | $148,421 |
| Total paid over the loan | $682,633 | $448,421 |
| Equity built from payments after 5 years | $19,167 | $73,048 |
Two things stand out. First, the 30-year loan costs more in interest than the amount borrowed. Second, look at the equity after five years: early 30-year payments are mostly interest, so the balance barely moves. That matters if you might sell or refinance within a few years.
Both columns show principal and interest only. Property tax, insurance and any PMI come on top, and they're the same whichever term you choose.
The middle ground: a 30-year loan paid like a 15-year one
You don't have to choose between the two extremes. Take the 30-year loan and pay extra toward principal whenever you can:
- Pay the 15-year amount ($2,491) every month and the 30-year loan is paid off in 196 months, about 16 years and 4 months. Total interest is $187,167: about $38,700 more than the true 15-year loan, because of the higher rate, but you can drop back to $1,896 any month money is tight.
- Pay just $200 extra a month and the loan is gone in 277 months (23 years and 1 month). Total interest falls to $279,185, a saving of about $103,400.
Most mortgages today have no prepayment penalty, but confirm it on your Loan Estimate. When you make extra payments, make sure your servicer applies them to principal rather than holding them for next month's payment.
"Invest the difference instead"?
A common argument for the 30-year loan is that you could invest the $595 a month you don't spend on the higher payment. Here is how that plays out over 15 years in this example:
- The 15-year borrower owns the home outright.
- The 30-year borrower who invested $595 a month at a 7% average return has about $188,600, but still owes about $217,700 on the mortgage.
To come out ahead, the investments would need to earn a good deal more than 7%, every year, after taxes. Stocks have done that over some long periods and fallen short over others. Paying down a mortgage is a guaranteed return equal to its interest rate. The argument is stronger when mortgage rates are low, and weaker when they are 6% or more.
When a 15-year mortgage makes sense
- The higher payment fits comfortably, with an emergency fund and retirement savings still on track.
- You want to be debt-free by a specific date, such as retirement or a child's college years.
- Your income is stable and unlikely to drop.
When a 30-year mortgage makes sense
- The 15-year payment would push housing past about 28% of your gross income. (See how much house you can afford.)
- Your income varies, and a lower required payment is a safety net.
- You aren't yet getting your full employer 401(k) match, or you still carry high-interest debt. Those usually come first.
Compare your own numbers
Enter your loan amount, rate and term in the Mortgage Calculator and check the amortization schedule to see how much of each payment goes to interest in the early years. To see what investing the difference could look like, try the Investment Calculator.
Frequently asked questions
Is a 15-year mortgage worth it?
Can I switch from a 30-year to a 15-year mortgage later?
Why is the rate lower on a 15-year mortgage?
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