Key takeaways
- On a $320,000 loan, a 15-year mortgage costs about $635 more a month than a 30-year one, but saves about $249,826 in interest.
- The 15-year loan wins on cost twice: a lower rate, and half as many years of interest.
- The 30-year loan wins on flexibility. Paying it like a 15-year gets you most of the savings while keeping the lower required payment.
- Pick the 15-year only if the higher payment leaves room for retirement savings and an emergency fund.
The monthly payment gets all the attention, but the loan term decides how much the house really costs. Here’s the same home financed both ways.
Side by side
A $400,000 home with 20% down ($320,000 loan), comparing a 30-year fixed rate of 6.5% with a 15-year fixed rate of 5.75%:
| 30-year at 6.5% | 15-year at 5.75% | |
|---|---|---|
| Principal & interest | $2,022.62 | $2,657.31 |
| Total interest | $408,142 | $158,316 |
| Principal paid in year 1 | $3,577 | $13,849 |
| Principal paid in first 5 years | $20,445 | $77,918 |
| Total of payments | $728,142 | $478,316 |
The 15-year payment is about $635 a month higher, roughly 31% more. In exchange, total interest drops by $249,826, and equity builds several times faster in the early years.
Property taxes and insurance are the same either way, so the gap in your full monthly payment is the same $635. As a share of the total, it’s smaller than it looks above.
Why the 15-year saves so much
Two effects stack:
- Fewer years of interest. Interest is charged on the balance every month. Paying the balance down in 15 years instead of 30 means far fewer months of interest on a large balance. See how mortgage amortization works for the month-by-month mechanics.
- A lower rate. Lenders price 15-year loans lower because they’re repaid faster. Even at the same rate, the 15-year would save a lot. The lower rate adds to it.
The middle path: a 30-year loan paid like a 15-year
What if you take the 30-year loan at 6.5% and voluntarily pay the extra $635 a month toward principal?
| 15-year at 5.75% | 30-year at 6.5% + $635/month extra | |
|---|---|---|
| Paid off in | 15 years | 16 years and 4 months |
| Total interest | $158,316 | $199,598 |
| Required monthly payment | $2,657.31 | $2,022.62 |
Because of the higher rate, the 30-year-plus-extra path takes longer and costs about $41,282 more in interest than the true 15-year loan. What you buy with that is optionality: if you lose your job, have a baby, or face a big repair, you can drop back to the required payment without refinancing or missing a payment.
Our extra mortgage payments guide looks at smaller prepayment amounts, too.
Which should you choose?
A 15-year mortgage fits when:
- The higher payment still leaves room to max out an employer 401(k) match and keep a healthy emergency fund.
- Your income is stable, and you’d rather have the discipline built in.
- You want to own the home outright before a milestone like retirement or college tuition.
A 30-year mortgage fits when:
- The 15-year payment would stretch your budget, or you’d have to buy a cheaper home to afford it.
- Your income varies, or you’re building savings for the first time.
- You’d invest the difference. Whether that beats paying off a 6.5% loan depends on your returns and discipline, but the payoff is a guaranteed, after-tax return equal to the rate.
Other terms exist, too. 20-year and 10-year fixed loans sit in between, and not every lender offers them, so ask.