A 15-year mortgage pays the house off in half the time and usually at a lower rate, so it costs far less interest in total, but the monthly payment is much higher. A 30-year mortgage has the lowest required payment, which leaves room in the budget and keeps you flexible, at the price of paying interest for twice as long. If the 15-year payment fits comfortably with an emergency fund and retirement saving still on track, it is the cheaper loan; if it would stretch you, take the 30-year and prepay when you can.
At a glance
Example: borrowing $300,000 at example rates of 5.50% for 15 years and 6.25% for 30 years (fixed rates, monthly payments, principal and interest only; taxes and insurance excluded).
| 15-year at 5.50% | 30-year at 6.25% | |
|---|---|---|
| Monthly payment | $2,451.25 | $1,847.15 |
| Number of payments | 180 | 360 |
| Total paid | $441,225.07 | $664,974.58 |
| Total interest | $141,225.07 | $364,974.58 |
| Interest as a share of the loan | 47% | 122% |
| First payment: interest / principal | $1,375.00 / $1,076.25 | $1,562.50 / $284.65 |
| Interest paid in the first 5 years | $72,942.01 | $90,840.82 |
| Balance after 5 years | $225,866.99 | $280,011.72 |
| Balance after 10 years | $128,329.91 | $252,713.14 |
The 15-year loan costs $604.10 more per month but saves $223,749.51 in interest. Part of that saving comes from the lower rate and most from the shorter term: at the same 6.25% for both, the 15-year payment would be $2,572.27 and the total interest $163,008.35, still $201,966.23 less than the 30-year loan.
Payments use the standard formula M = P × r / (1 − (1 + r)^−n), with r the monthly rate and n the number of payments. Run your own numbers in the Mortgage Calculator and see the month-by-month split in the Amortization Calculator.
15-year mortgage
You build equity fast: in the example, more than 40% of the very first payment goes to principal, and after five years you owe about $226,000 instead of $280,000. You are debt-free in 15 years, and the total interest bill is well under half.
Choose the 15-year when:
- The payment fits with room to spare, after an emergency fund and retirement contributions.
- Your income is stable and you want to be mortgage-free by a set date, such as retirement or children's college.
- You value the guaranteed "return" of not paying interest more than the possible higher return of investing the difference.
30-year mortgage
The required payment is about a quarter lower, which helps you qualify, leaves cash for other goals and cushions a job loss or emergency. Early on, though, most of each payment is interest: only $284.65 of the first $1,847.15 reduces the balance, and after ten years you still owe more than 84% of the original loan.
Choose the 30-year when:
- The 15-year payment would strain your budget or leave you without savings.
- Your income is variable, or you expect big expenses soon.
- You will reliably invest the difference, or you plan to prepay voluntarily (check with the Mortgage Payoff Calculator how much extra payments save).
Which should you choose?
- Can afford the 15-year payment comfortably: 15-year.
- Can afford it only on paper: 30-year, and prepay principal when you can.
- Need the lowest payment to qualify: 30-year; check what you can borrow with the House Affordability Calculator.
- Expect to move or refinance within a few years: the term matters less than the rate and fees; compare offers side by side with the Loan Comparison Calculator.
- Already have a 30-year loan: refinancing to 15 years has closing costs; the Refinance Calculator shows the break-even.
Worked example: investing the difference
Suppose two buyers both spend $2,451.25 a month for 30 years. Buyer A takes the 15-year loan and, once it is paid off, invests the full $2,451.25 a month for the remaining 15 years. Buyer B takes the 30-year loan and invests the $604.10 difference every month from the start. Ignoring taxes, the 30-year buyer ends up ahead only if investments earn more than about 7.5% a year (compounded monthly) over the whole period. At 6% a year, Buyer A finishes with about $712,869 and Buyer B with about $606,826; at 8%, Buyer B wins, about $900,324 against $848,226. The 30-year loan is a bet on returns beating the mortgage rate by a comfortable margin, and on actually investing the difference every month.