A 15-year mortgage has higher monthly payments but saves over 50% in total interest and typically gets a 0.5%–0.75% lower rate. A 30-year mortgage offers lower monthly payments and more cash flow flexibility. The right choice depends on your income stability and other financial goals.
How a 15-Year Mortgage Works
With a 15-year term, you pay off your home in half the time. Lenders offer lower interest rates for 15-year loans (typically 0.5%–0.75% less) because shorter terms are lower risk. The trade-off is a significantly higher monthly payment — roughly 40%–50% more than the 30-year equivalent.
You build equity much faster: after 5 years on a 15-year term, you've paid down about 30% of the principal. On a 30-year term, you've paid down only about 10%.
How a 30-Year Mortgage Works
The 30-year mortgage is the most popular option, used by about 90% of homebuyers. The longer term spreads payments out, making each monthly payment lower and more affordable. However, you pay significantly more in total interest over the life of the loan.
The lower monthly payment frees up cash for other investments, an emergency fund, or retirement contributions — which may earn higher returns than the mortgage interest rate you're avoiding.
Side-by-Side Comparison
| Factor ($400K loan) | 15-Year at 5.75% | 30-Year at 6.5% |
|---|---|---|
| Monthly payment (P&I) | $3,318 | $2,528 |
| Total interest paid | $197,240 | $510,080 |
| Interest savings | Saves $312,840 | — |
| Equity at year 5 | ~$130,000 | ~$40,000 |
| Interest rate (typical) | 0.5%–0.75% lower | Higher |
| Cash flow flexibility | Limited ($790/mo more) | More cash for other goals |
| Qualification difficulty | Harder (higher DTI) | Easier to qualify |
When to Choose 15-Year vs 30-Year
- The higher payment is ≤25% of your gross income
- You're already maxing out retirement contributions
- You want to be mortgage-free by a target date
- You're refinancing and can afford the higher payment
- You prioritize guaranteed savings (interest avoided)
- You need the lower payment to qualify or stay comfortable
- You'd invest the $790/month difference in the market
- You value flexibility for emergencies or career changes
- You're a first-time buyer stretching to afford the home
- You plan to refinance or sell before 15 years
Real-World Example
On a $400K loan, the 15-year payment is $790/month more. If instead you take the 30-year loan and invest that $790/month at 8% average return for 15 years, your investment portfolio grows to approximately $274,000.
Meanwhile, the 15-year mortgage saves you $312,840 in interest. But at year 15, you still have $276,000 remaining on the 30-year loan. Net comparison: roughly a wash — with the 30-year + invest strategy being slightly ahead if you maintain 8%+ returns and slightly behind if returns are lower.
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Frequently Asked Questions
How much do you save with a 15-year vs 30-year mortgage?
On a $400,000 loan, a 15-year mortgage at 5.75% saves approximately $312,000 in total interest compared to a 30-year at 6.5%. The exact savings depend on your specific rate and loan amount.
Can I get a 20-year or 25-year mortgage instead?
Yes. Many lenders offer 20-year and 25-year terms as a middle ground. Rates are typically between the 15- and 30-year rates, offering moderate savings with more manageable payments.
Should I take a 30-year and pay extra instead?
This is a popular hybrid strategy. You get the lower required payment for safety, but make extra principal payments when you can. The key advantage is flexibility — you can reduce extra payments during tight months.
Does the 15-year mortgage build equity faster?
Significantly faster. After 5 years on a 15-year term, roughly 30% of your original loan is paid off. On a 30-year term, only about 10% is paid off at the 5-year mark because early payments are mostly interest.
Which is better for a second home or investment property?
For investment properties, the 30-year is usually better because the lower payment maximizes cash flow. For a second home you plan to pay off before retirement, the 15-year might make more sense.