15-Year vs 30-Year Mortgage: Which Saves You More?
A 15-year loan can save you six figures in interest, but a 30-year loan buys flexibility. We compare both with real numbers and explain who each one suits.
Choosing a mortgage term is one of the biggest financial decisions most people make, and it is often made in a hurry at the lender's desk. The two common choices, 15 and 30 years, lead to very different outcomes. Here is how to compare them properly.
The headline numbers
Consider a $300,000 loan. Fifteen-year mortgages typically carry rates about 0.5 to 0.75 percentage points lower than 30-year loans, so assume 5.75% for 15 years and 6.5% for 30 years.
| 15-year at 5.75% | 30-year at 6.5% | |
|---|---|---|
| Monthly payment (P&I) | $2,491 | $1,896 |
| Total interest | $148,400 | $382,600 |
| Balance after 5 years | $227,000 | $280,800 |
| Balance after 10 years | $129,600 | $254,300 |
The 15-year loan costs about $595 more each month but saves roughly $234,000 in interest. It also builds equity far faster: after five years you would owe about $54,000 less.
The case for the 15-year mortgage
- Massive interest savings. You borrow for half the time at a lower rate.
- Forced saving. The higher payment builds equity automatically, with no willpower required.
- Debt-free sooner. Owning your home outright by your 50s or early 60s makes retirement much cheaper.
The case for the 30-year mortgage
- Lower required payment. That leaves room in your budget for emergencies, childcare or job changes.
- Flexibility. You can always pay extra on a 30-year loan to mimic a shorter term, but you cannot lower the payment on a 15-year loan if money gets tight.
- Investing the difference. If you invest the $595 monthly difference and earn more than your mortgage rate, you may come out ahead. At a 7% return over 30 years, $595 a month grows to about $725,000.
- Easier to qualify. Lenders look at your debt-to-income ratio, and a lower payment helps.
Does investing the difference really win?
On paper it often does, because long-run stock returns have exceeded mortgage rates. In practice there are three catches. First, investment returns are not guaranteed, while the interest saved on a mortgage is a guaranteed return equal to your rate. Second, many people do not actually invest the difference consistently for decades. Third, once the 15-year loan is paid off, you can invest the entire former payment for the next 15 years, which narrows the gap considerably. Run both scenarios with the compound interest calculator using a return you genuinely expect after fees.
A middle path
Many advisers suggest taking a 30-year mortgage and making extra principal payments when you can. Paying an extra $300 a month on the 30-year loan above would clear it in about 21 years and save around $135,000 in interest, while keeping the lower required payment as a safety net. Check that your loan has no prepayment penalty first.
How to decide
- Build an emergency fund of three to six months of expenses first.
- Make sure you are capturing any employer retirement match.
- Check whether the 15-year payment keeps your total housing cost under about 28% of gross income.
- If it does, and your income is stable, the 15-year loan is a strong choice. If not, take the 30-year loan and prepay.
Use the mortgage calculator to plug in your own price, down payment and current rates. Switching the term between 15 and 30 years shows the change in payment, total interest and payoff date instantly.