15-Year vs 30-Year Mortgage
Same house, two loans: how the term changes your payment, your equity, and the total interest you hand the lender.
On a $320,000 loan, a 30-year mortgage at 6.5 percent costs about $2,023 a month and $408,000 in total interest, while a 15-year loan at 5.75 percent costs about $2,657 a month but only about $158,000 in total interest. The 15-year saves roughly $250,000 in interest for a payment about $635 higher.
The numbers side by side
Take a $320,000 loan. The 30-year at 6.5 percent: about $2,023 a month, $728,000 in total payments, $408,000 of it interest. The 15-year at 5.75 percent (lenders usually price shorter terms lower): about $2,657 a month, $478,000 in total payments, $158,000 of it interest.
The difference: the 15-year payment is about $635 higher each month, but it saves roughly $250,000 in interest and the loan is gone in half the time. That is the whole tradeoff in one paragraph.
Equity builds at different speeds
After 5 years, the 30-year borrower still owes about $300,000 of the $320,000, barely 6 percent paid down. The 15-year borrower owes about $245,000, nearly a quarter paid down. After 10 years the gap is wider: roughly $273,000 owed versus $150,000.
Fast equity matters if you might sell or refinance. Slow early equity on a 30-year loan is why buyers who sell after 3 or 4 years sometimes walk away with almost nothing after closing costs, despite years of payments.
Who should pick the 15-year
Pick the 15-year if the higher payment still leaves room for an emergency fund, retirement savings, and life. It is a forced savings plan with a guaranteed return equal to the mortgage rate, and it suits buyers who plan to stay put and value being debt-free sooner.
The risk is liquidity. Money sunk into extra mortgage principal is hard to get back in an emergency without selling or borrowing. If the 15-year payment would leave you cash-poor, the 30-year with voluntary extra payments keeps the same optionality with a lower required payment.
The hybrid: 30-year loan, 15-year behavior
You can take the 30-year loan for its lower required payment and then pay extra principal each month to mimic a 15-year payoff. The interest savings are nearly as large, and you keep the right to drop back to the lower payment if income dips.
The catch is discipline, and a slightly higher rate: the 30-year rate usually runs 0.5 to 0.75 points above the 15-year rate, so the hybrid costs a little more than a true 15-year loan. Automate the extra payment so it is not a monthly decision.
Skip the arithmetic
Compare both terms on your own price with the free mortgage calculator.
Term comparison questions
How much interest does a 15-year mortgage save?
On a $320,000 loan, roughly $250,000 in this comparison: about $158,000 in total interest on a 15-year loan at 5.75 percent versus about $408,000 on a 30-year loan at 6.5 percent. The exact savings depend on the rate spread between the two terms.
Is it better to get a 15-year mortgage or invest the difference?
Compare the mortgage rate against expected investment returns, adjusted for risk and taxes. Extra principal payments earn a guaranteed return equal to the mortgage rate. Investing the difference might earn more over long periods, but with market risk and no guarantee. Many buyers split the difference.
Can I refinance from a 30-year to a 15-year later?
Yes. Refinancing from a 30-year into a 15-year is common when rates fall or income rises. Factor in closing costs and remember the new loan restarts the amortization clock at the interest-heavy end, so compare lifetime interest, not just the monthly payment.