The comparison at the same rate
Here is a $300,000 loan at 6.5%, with principal and interest only. The rate is an example, not a current market rate.
| 30-year | 15-year | |
|---|---|---|
| Monthly payment | $1,896.20 | $2,613.32 |
| Total interest | $382,633.47 | $170,397.98 |
| Total paid | $682,633.47 | $470,397.98 |
The 15-year loan costs $717.12 more each month and saves $212,235.49 in interest. Put another way, the 30-year loan costs more than double the interest because you owe the money for twice as long, and interest is charged on the unpaid balance every month. You can test this yourself in the Mortgage calculator, which shows the monthly payment, total interest and a year-by-year balance for any price, down payment, rate and term.
Shorter loans often carry lower rates
Lenders usually charge a lower rate on 15-year loans than on 30-year ones, because the money is lent for less time. The size of the gap changes with the market, so check actual quotes. If the 15-year rate were 5.75% in this example, the figures become:
| 30-year at 6.5% | 15-year at 5.75% | |
|---|---|---|
| Monthly payment | $1,896.20 | $2,491.23 |
| Total interest | $382,633.47 | $148,421.45 |
The payment gap shrinks to $595.03 and the interest saved grows to $234,212.02. Use the APR vs interest rate guide to compare offers on equal terms, and compare the two quotes side by side in the Loan comparison calculator, which shows payments, interest and upfront fees for two fixed-rate loans.
How fast you build equity
Equity is the part of the home you own: its value minus what you owe. A 15-year loan pays principal much faster. After five years (60 payments) on the example loans at 6.5%:
- 30-year: you still owe about $280,832.93, having repaid $19,167.07 of principal.
- 15-year: you owe about $230,151.36, having repaid $69,848.64.
On a 30-year loan the early payments are mostly interest, which is explained in what is amortization. Equity matters if you want to sell, refinance or borrow against the home, but remember that home prices can also fall, so loan paydown is the part you control.
The middle route: a 30-year loan with extra payments
A 30-year loan gives you the lower required payment, and you choose whether to pay extra. Taking the 30-year loan above and adding $200 a month shortens it to 277 months (about 23 years) and cuts total interest to $279,184.67, a saving of $103,448.80. If you paid exactly the 15-year amount of $2,613.32 on the 30-year loan, you would finish in 180 months with the same interest as the 15-year loan.
The catch is discipline, and the 30-year rate is usually higher, so the same extra payments save less than choosing the 15-year loan outright. Also check your loan terms for any prepayment penalty and make sure extra money is applied to principal. See extra mortgage payments and how extra payments shorten a loan.
Include taxes and insurance
The figures above are principal and interest only. Your real monthly payment also includes property tax and homeowners insurance, usually collected in an escrow account, and possibly mortgage insurance and HOA dues. Those costs are the same regardless of loan term, so they make the 15-year payment a smaller percentage jump, but they also add to the monthly total you need to afford. Enter them in the Mortgage calculator to see the full figure. It does not include private mortgage insurance, closing costs or points.
To see what price range a given payment supports, read how much house can I afford. A 15-year loan reduces the price you can afford for the same monthly payment, since the payment is larger per dollar borrowed.
Who each term tends to suit
A 15-year loan may suit you if your income is stable, you have an emergency fund, the payment fits comfortably, you are not giving up other priorities such as retirement saving, and you want to own the home outright sooner.
A 30-year loan may suit you if you need breathing room in the budget, your income varies, you would rather invest or save the difference, or you want flexibility to pay extra only when you can. A lower required payment is also a safety margin if something unexpected happens.
Neither is right for everyone. The 15-year loan is the stronger choice only if the payment does not squeeze the rest of your finances. Check the payment against your budget in the Monthly budget planner.
Questions to ask before deciding
- What would each payment be with taxes and insurance included?
- Would I still be able to save for emergencies and retirement after the higher payment?
- What rates are actually offered on each term, and with what fees?
- How long do I expect to keep the home? If you may move in a few years, the long-run interest total matters less than the balance you will owe.
- Could I refinance later if rates fall? See refinancing basics and fixed vs adjustable rate mortgages.
All figures are fixed-rate estimates based on the standard payment formula. Your lender's Loan Estimate shows the real terms.
Frequently asked questions
Is a 15-year mortgage better than a 30-year mortgage?
A 15-year loan costs much less in total interest and builds equity faster, but the monthly payment is higher. It is better only if the payment fits comfortably in your budget.
How much interest do I save with a 15-year mortgage?
On $300,000 at 6.5% for both terms, total interest is $170,397.98 for 15 years and $382,633.47 for 30 years, a saving of $212,235.49. A lower 15-year rate would increase the saving.
Can I get a 15-year result with a 30-year mortgage?
Yes, by paying the 15-year payment amount on a 30-year loan, though you stay free to pay less. The 30-year rate is usually higher, so the interest saved is smaller.
Do 15-year mortgages have lower interest rates?
Usually, because lenders carry the risk for less time. The gap varies with the market and the lender, so compare actual quotes.
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