A 15-year mortgage costs much less in total interest and builds equity faster, but the monthly payment is a lot higher. A 30-year mortgage has a lower payment that leaves room in your budget, but you pay far more interest over the life of the loan.
On a $300,000 loan, a 30-year at 6.5% costs about $1,896 a month and roughly $383,000 in interest. A 15-year at 5.75% costs about $2,491 a month and roughly $148,000 in interest. That is $595 more each month to save about $234,000.
Quick check: compare both terms with your own price and rate in our free mortgage calculator.
15 vs 30-year mortgage at a glance
- Monthly payment: 15-year is higher, often 25% to 35% more
- Interest rate: 15-year is usually about half a point to three quarters of a point lower
- Total interest: 15-year is often less than half
- Equity: 15-year builds it much faster
- Flexibility: 30-year leaves more cash each month for saving, investing or emergencies
- How much house you qualify for: 30-year lets you qualify for more, because the payment is lower
Why the 15-year saves so much
Two things work together. First, the rate is lower, because lenders take less risk over a shorter time. Second, you borrow the money for half as long. In the early years of a 30-year loan, most of each payment is interest. In the first year of the $300,000 example, about $19,400 of the payments goes to interest and only about $3,350 to principal.
After 15 years of a 30-year loan, you would still owe about $218,000. With the 15-year loan, you would own the house outright.
When a 15-year mortgage makes sense
- The higher payment fits comfortably, under about 28% of your gross income. Use our how much house can I afford guide to check.
- You already have an emergency fund and are saving for retirement.
- You want to be mortgage-free before retiring or before kids go to college.
- You are refinancing and are already several years into a 30-year loan.
- You value the guaranteed “return” of paying less interest over the uncertainty of investing.
When a 30-year mortgage makes sense
- You are a first-time buyer and the 15-year payment would stretch your budget.
- Your income is variable, like commission or self-employment.
- You have not maxed out tax-advantaged retirement savings like a 401(k) or IRA.
- You would rather have the flexibility of a lower required payment and pay extra when you can.
The middle path: a 30-year loan, paid like a 15
You can take a 30-year mortgage and pay extra toward principal every month. Paying the 15-year amount of $2,491 on the 30-year loan at 6.5% would pay it off in about 16 years, with total interest around $187,000. That costs more than the true 15-year because of the higher rate, but if money gets tight, you can drop back to the lower required payment at any time.
Check that your loan has no prepayment penalty. Most standard US mortgages today do not.
What about investing the difference?
A common argument for the 30-year loan is to invest the monthly difference instead. In the example, investing $595 a month for 15 years at a 7% average return would grow to about $189,000. At that point you would still owe about $218,000 on the 30-year mortgage, so the 15-year borrower is ahead under these assumptions.
The answer changes with the numbers. When mortgage rates are low, like 3%, investing the difference usually wins. When rates are 6% to 7%, paying down the mortgage looks much better, because it is a guaranteed return at that rate. The investing route also only works if you actually invest the difference every month, and stay invested through market drops.
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Frequently asked questions
Is it harder to qualify for a 15-year mortgage?
The credit requirements are similar, but the higher payment means your debt-to-income ratio must fit a bigger number. Some buyers qualify for a 30-year but not a 15-year at the same price.
Can I switch from a 30-year to a 15-year later?
Only by refinancing, which has closing costs of 2% to 5% of the loan. Paying extra on the 30-year gives you a similar result without refinancing.
Are there 20 or 10-year mortgages?
Yes. Many lenders offer 10, 20 and 25-year terms. A 20-year loan is a popular middle ground with a lower rate than a 30 and a smaller payment than a 15.
How is this different in Canada?
Canadian mortgages usually have a 25 or 30-year amortization but a rate term of 1 to 5 years, after which you renew. Try our Canadian mortgage calculator.
This article is general information, not financial advice. Rates and terms vary by lender, so get quotes for both terms before deciding.
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