The trade-off
| 15-year | 30-year | |
|---|---|---|
| Monthly payment | Higher | Lower |
| Interest rate | Typically lower, possibly by as much as a full percentage point | Typically higher |
| Total interest | Much lower | Much higher |
| Equity build-up | Fast | Slow at first |
| Budget flexibility | Less | More |
Worked example
A $300,000 loan. The rates are examples, not current rates: 6.5% for 30 years and 5.75% for 15 years, a 0.75-point gap.
| Loan | Rate | Monthly principal and interest | Total interest | Total paid |
|---|---|---|---|---|
| 30-year | 6.50% | $1,896.20 | $382,633 | $682,633 |
| 15-year | 5.75% | $2,491.23 | $148,421 | $448,421 |
| 15-year at the same 6.50% | 6.50% | $2,613.32 | $170,398 | $470,398 |
The 15-year loan costs $595 more a month but saves about $234,000 in interest. Even at the same rate, the shorter term saves about $212,000, because you borrow the money for half as long. Payments exclude taxes and insurance. Check the numbers with the 15-year mortgage calculator or the mortgage calculator, and see the formula explained in how loan payments are calculated.
How fast you build equity
The shorter loan pays down principal much faster, so you own more of your home sooner. Remaining balance on the same $300,000 loans:
| After | 30-year at 6.50% | 15-year at 5.75% |
|---|---|---|
| 5 years | $280,833 | $226,952 |
| 10 years | $254,328 | $129,638 |
| 15 years | $217,677 | $0 |
After five years, the 30-year borrower has repaid about $19,000 of principal; the 15-year borrower has repaid about $73,000. That matters if you sell or refinance early, or want to remove mortgage insurance sooner. See what home equity is.
The middle path: a 30-year loan paid like a 15
You can take a 30-year loan and pay extra toward principal. If your loan has no prepayment penalty, extra principal shortens the term and cuts interest, and you can drop back to the required payment in a tight month. The catch: the 30-year loan's higher rate means you'll still pay more interest than on a true 15-year loan, and it takes discipline. Confirm with your servicer that extra money goes to principal. Model it with the amortization calculator.
Who a 15-year mortgage suits
- People whose budget comfortably handles the higher payment, with emergency savings left over.
- Buyers who want to own the home outright before retirement.
- Refinancers who are already partway through a 30-year loan and don't want to restart the clock; compare with the refinance calculator.
Who a 30-year mortgage suits
- First-time buyers who need the lower payment to qualify or keep a cushion. A higher payment also raises your debt-to-income ratio; check it with the debt-to-income calculator.
- People with irregular income who value flexibility.
- People who'd rather put the payment difference toward other goals, such as retirement savings.
Source: CFPB: loan options (15-year vs 30-year terms); CFPB: prepayment penalties.
Every worked example on this page was checked with Calcist's own engine and an independent reference.