15-year vs 30-year: the trade-off
A 15-year mortgage packs the same loan into half the time, so each payment is bigger. In return you pay far less interest, and you own the home outright 15 years sooner. The CFPB puts it simply: shorter terms generally save money overall but have higher monthly payments. 15-year loans also usually come with a lower rate, which is why each rate is entered separately here.
How it's calculated
Payment = L × i ÷ (1 − (1 + i)−n), with i = rate ÷ 12 and n = 180 (or 360)
Balance after k payments = L(1 + i)k − payment × ((1 + i)k − 1) ÷ i
Equity = home price − balance
Balance after k payments = L(1 + i)k − payment × ((1 + i)k − 1) ÷ i
Equity = home price − balance
Equity here assumes the home's value doesn't change, so it's your down payment plus the principal you've paid. Any price growth adds to both loans equally.
Worked example
A $400,000 home with 20% down leaves a $320,000 loan.
| 15-year at 5.5% | 30-year at 6.25% | |
|---|---|---|
| Monthly payment | $2,614.67 | $1,970.30 |
| Total interest | $150,640.07 | $389,306.21 |
| Equity after 5 years | $159,075.21 | $101,320.83 |
| Equity after 10 years | $263,114.77 | $130,439.32 |
The 15-year payment is $644.37 more a month, but it saves $238,666.15 in interest and builds about twice the equity in 10 years.
When a 30-year can make sense
- The lower payment leaves room in your budget and makes it easier to qualify.
- You can pay extra on a 30-year when you can afford to and skip it when money is tight. A 15-year makes the higher payment required.
- Keep an emergency fund. A bigger required payment is harder to keep up if your income drops.
Limitations
- Payments are principal and interest only. Add property tax, insurance and PMI in the mortgage calculator.
- The site has no live rates. Freddie Mac publishes weekly average 15- and 30-year rates, and your own quote may differ.
- Points, closing costs and taxes aren't included.