15 vs 30 Year Mortgage
The loan term is one of the two or three biggest levers on a mortgage, alongside the price and the rate. Picking 15 or 30 years changes your monthly payment by hundreds of dollars and your lifetime interest by hundreds of thousands. Here is the full trade-off, with numbers, and a framework for deciding.
The comparison
On a $320,000 loan, assuming the 15-year rate is about 0.6 points below the 30-year rate (a typical spread):
| 30-year @ 6.5% | 15-year @ 5.9% | |
|---|---|---|
| Monthly P&I | ~$2,023 | ~$2,685 |
| Total paid over the loan | ~$728,000 | ~$483,000 |
| Total interest | ~$408,000 | ~$163,000 |
| Balance after 5 years | ~$298,000 | ~$238,000 |
| Equity built in 5 years (from principal) | ~$22,000 | ~$82,000 |
The 15-year costs about $662 more per month. In exchange it saves roughly $245,000 in interest and builds equity about four times faster in the early years, because more of each payment goes to principal and the rate is lower.
The 20-year middle option
Lenders offer 20-year (and sometimes 10- or 25-year) fixed terms, and they are under-used. On the same $320,000 loan at roughly 6.3%:
| 20-year @ 6.3% | |
|---|---|
| Monthly P&I | ~$2,343 |
| Total interest | ~$242,000 |
The payment is about $320 above the 30-year — far less of a stretch than the 15-year’s $662 — while cutting lifetime interest roughly in half versus the 30-year. If the 15-year payment is uncomfortable but you still want to be done well before retirement, ask for a 20-year quote before defaulting to 30.
The investing counter-argument
The case for the 30-year is not just “smaller payment.” It is that you can invest the ~$662/month difference. If that money earns more than the mortgage rate after tax over 15 years, you come out ahead by keeping the 30-year and investing.
Historically a diversified stock portfolio has returned more than ~6% over long periods, so on paper the 30-year-plus-invest strategy often wins. The catches:
- It only works if you actually invest the difference every month, every month, for 15 years — not “most months.”
- The mortgage return is guaranteed; the market return is not. Paying down a 6.5% loan is a risk-free 6.5%. Few risk-free investments match that.
- Sequence risk. A bad market in the years you need the money (near retirement, near a home sale) can leave the invest strategy behind.
- Tax treatment. Since the standard deduction rose, most households no longer itemise, so the mortgage-interest deduction that once softened the effective rate does not apply to them.
For a disciplined investor with a long horizon and stable income, the 30-year is defensible. For most people, the forced saving of the 15-year is a feature.
How the choice shifts by life stage
| Situation | Leans toward |
|---|---|
| Late 20s / early 30s, first home, income likely to rise | 30-year — keep payments low, invest the match first, prepay later |
| Mid-career, stable dual income, kids’ college 10+ years out | 15- or 20-year — you can carry the payment and want the interest gone |
| Within ~15 years of retirement | 15-year — eliminate the payment before income drops |
| Self-employed / commission / seasonal income | 30-year, paid extra in good months |
| Buying a home you may outgrow in 5–7 years | 30-year — lifetime interest matters less than cash flow |
When the 15-year makes sense
- Your income is stable and the higher payment still leaves a comfortable margin plus 3–6 months of expenses in reserve.
- You want to be mortgage-free by a specific date — retirement, or before a child starts college.
- You already capture your full employer 401(k) match and carry no higher-interest debt.
- You know yourself well enough to admit you would not reliably invest the payment difference.
When the 30-year makes sense
- The 15-year payment would push your housing costs above ~28% of gross income or crowd out retirement contributions and an emergency fund. See how much house can I afford.
- Your income is variable and you value the lower required payment even if you usually pay more.
- You expect to move or refinance within 5–7 years.
- You have higher-return uses for the cash: employer match, 25% credit-card debt, a business.
The middle path: a 30-year paid like a 15
Take the 30-year loan for its low required payment, then add extra principal each month to hit a 15-year payoff. Paying the 30-year loan as if it were $2,685/month clears it in about 15–16 years.
You give up the slightly lower 15-year rate (so you pay a bit more interest than a true 15-year), but you keep the option to drop back to the $2,023 required payment in a month where the car breaks or work is slow. For anyone whose income is not rock-solid, that flexibility is worth the small rate premium. The mortgage calculator’s amortization table shows exactly how a fixed extra payment shortens the term, and how amortization works explains why early extra payments do the most.
Common mistakes
- Choosing the 15-year and then having no emergency fund. A lower interest bill does not help if you take a 25% cash advance when the roof leaks.
- Choosing the 30-year “to invest the difference” and then spending it.
- Refinancing a 30-year into a fresh 30-year every few years, re-loading the front-heavy interest schedule each time.
- Ignoring the 20-year option because only 15 and 30 were quoted.
The bottom line
The 15-year saves a large amount of interest and builds equity fast, at the cost of a payment several hundred dollars higher. The 20-year splits the difference and is worth quoting. The 30-year trades interest for cash flow and flexibility, and can win if you genuinely invest the difference. If unsure, take the 30-year and prepay aggressively — you get most of the savings and keep the escape hatch. Buying a house you can comfortably afford matters far more than the term.