15-year vs 30-year mortgage: the payment, the interest and which to choose

On a $350,000 mortgage at 7.03%, a 15-year term means a monthly payment of $3,152 and a 30-year term $2,336. The shorter loan costs $816 more a month, a 35% higher payment, but it saves $273,502 in interest. Over 30 years you would pay $490,821 in interest, 140% of the amount you borrowed and 2.3 times as much as on the 15-year loan.

Term	Monthly payment	Total interest	Interest vs loan	Total paid
10 years	$4,069	$138,305	40%	$488,305
15 years	$3,152	$217,319	62%	$567,319
20 years	$2,720	$302,765	87%	$652,765
25 years	$2,480	$394,129	113%	$744,129
30 years	$2,336	$490,821	140%	$840,821

• 30 years
• 15 years

30

• 30 years$0
• 15 years$0

A $350,000 loan at 7.03%. Horizontal axis: years since the first payment.

Why the longer term costs so much more

Interest is charged on the balance you still owe. On a longer loan the balance comes down more slowly, so the lender charges interest on a large debt for longer. Of the first payment on the 30-year loan, 88% is interest; only the rest pays down the debt.

After 10 years you still owe 86% of the original amount on the 30-year loan, but 45% on the 15-year one. When the 15-year loan is paid off, the 30-year loan still has $259,367 (74% of the loan) and 15 more years to go.

In practice the gap is usually wider than in the table: lenders typically charge a lower rate on 15-year loans, and Freddie Mac's survey reports the 15-year average next to the 30-year one. Compare the actual offers for both terms.

A 30-year loan paid like a 15-year one

You can get most of the savings with the longer loan too: pay the difference of $816 on top of every payment and the loan is paid off in 15 years, with $217,319 of interest, the same as the shorter loan at the same rate. The difference is flexibility: in a tight month you only owe the lower payment.

The catch is discipline and the rate. Money nobody asks for is easy to spend, and you keep paying the 30-year rate, which is usually higher. Check that your loan has no prepayment penalty and mark the extra as a payment toward principal. What smaller extras save is in Extra mortgage payments.

Which one to choose

• The shorter term is the cheapest way to own your home, if the higher payment fits your budget with room to spare.
• The longer term keeps the required payment low, which helps you qualify and leaves room for other goals, such as retirement savings or an emergency fund. You pay for that with more interest, unless you pay the loan down faster than you have to.
• Emergency fund first. Money paid into the house is hard to get back out. Keep a few months of expenses in cash before you choose the higher payment.

Try your own loan, rate and term in the mortgage calculator.