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The 30-year fixed mortgage is the default choice for most buyers because it has the lowest monthly payment. A 15-year mortgage costs more each month but can save a staggering amount of interest. Which is better depends on your budget, your other goals, and how disciplined you are with the money you’d save. Here is the comparison with real numbers.
The setup
We’ll compare two loans for the same $320,000 (a $400,000 home with 20% down). Lenders usually price 15-year loans lower than 30-year loans, so we’ll use 6.5% for 30 years and 5.75% for 15 years. These are illustrative rates — plug in today’s quotes in our mortgage calculator.
Head-to-head
| 30-year at 6.5% | 15-year at 5.75% | |
|---|---|---|
| Monthly principal & interest | $2,022.62 | $2,657.31 |
| Total interest | $408,142 | $158,316 |
| Principal repaid in first 5 years | $20,445 | $77,918 |
| Balance after 5 years | $299,555 | $242,082 |
The 15-year loan costs $634.69 more each month, but saves $249,826 in interest — more than three-quarters of the original loan amount. It also builds equity almost four times as fast in the early years, which matters if you plan to sell or refinance.
Where the savings come from
Two separate effects add up:
- Fewer years of interest. Even at the same 6.5% rate, a 15-year loan would cost $2,787.54 a month with $181,758 total interest — still about $226,000 less than the 30-year.
- A lower rate. Dropping from 6.5% to 5.75% on the 15-year loan saves another $130 a month and about $23,000 in interest.
In the first month of the 30-year loan, $1,733.33 of the $2,022.62 payment is interest. The longer the loan, the longer you stay in that interest-heavy early phase.
How the rate level changes the result
Rates move, so here is the same $320,000 loan at three rate pairs. Each pair keeps the 15-year rate 0.75 points below the 30-year rate.
| Rates (30-year / 15-year) | 30-year payment | 15-year payment | Extra per month | Interest saved |
|---|---|---|---|---|
| 5.5% / 4.75% | $1,816.92 | $2,489.06 | $672.14 | $206,062 |
| 6.5% / 5.75% | $2,022.62 | $2,657.31 | $634.69 | $249,826 |
| 7.5% / 6.75% | $2,237.49 | $2,831.71 | $594.22 | $295,787 |
Two patterns stand out. When rates are higher, the 15-year loan costs less extra each month, and it saves more interest. So the case for the shorter loan gets stronger as rates rise. A wider gap between the two rates pushes the same way.
The case for the 30-year mortgage
- Lower required payment. If money gets tight — job loss, medical bills, a new baby — you only have to pay $2,022.62, not $2,657.31.
- Easier to qualify. Lenders look at your payment compared with your income, so a lower payment can mean a larger approval or an easier approval.
- Flexibility to prepay. Most mortgages let you pay extra principal without penalty, so you can pay like a shorter loan when you can afford it.
- Room for other goals. The monthly difference can go towards an emergency fund, retirement contributions or higher-interest debt.
The case for the 15-year mortgage
- Far less total interest — about a quarter of a million dollars in this example.
- Debt-free 15 years sooner, which can be a big deal if you want to retire or slow down earlier.
- Built-in discipline. The higher payment is automatic; you don’t have to choose to save each month.
“Just invest the difference” — does it work?
A common argument is to take the 30-year loan and invest the $634.69 monthly difference. At a 7% average annual return, that would grow to roughly $201,000 after 15 years. But at that point the 30-year borrower still owes about $232,000 on the mortgage, while the 15-year borrower owns the home outright.
With these numbers the 15-year loan comes out ahead, and that’s before considering that investment returns are never guaranteed. Investing the difference wins only if your returns are well above your mortgage rate and you actually invest every month without fail. Taxes, mortgage interest deductions and investment account types can shift the math, so treat this as a framework rather than a verdict.
Here is the break-even view. Invest the $634.69 every month for 15 years, then compare the account with the $232,189 still owed on the 30-year loan:
| Average yearly return | Account after 15 years | Compared with the balance |
|---|---|---|
| 5% | $169,647 | $62,542 behind |
| 7% | $201,174 | $31,015 behind |
| 9% | $240,172 | $7,983 ahead |
The account needs to earn about 8.6% a year, after taxes and fees, just to break even. At the other rate pairs above, the break-even return is about 7.5% (for 5.5% / 4.75%) and 9.8% (for 7.5% / 6.75%). The higher your mortgage rate, the harder it is for investing to win. These figures assume monthly compounding and no missed months.
The middle ground: a 30-year loan paid like a shorter one
If you like the safety of the lower required payment, take the 30-year loan and add a fixed amount of extra principal every month. Adding $300 a month to the 30-year loan above:
- Pays it off in 21 years and 2 months instead of 30 years.
- Cuts total interest from $408,142 to about $269,696 — a saving of roughly $138,446.
- Keeps your required payment at $2,022.62 if you ever need to stop the extra.
You won’t save as much as with a true 15-year loan, because you keep the higher 30-year rate, but you keep the flexibility.
PMI, taxes and insurance
The payments above are principal and interest only. Property taxes and homeowners insurance cost the same on either loan, so they add the same amount to both payments. Include them when you check what you can afford; our guide to how much house you can afford uses the 28/36 rule with full payments.
With less than 20% down on a conventional loan, you also pay private mortgage insurance (PMI) until you build enough equity. A 15-year loan gets you there much faster. Take the same $400,000 home with 10% down, so you borrow $360,000:
- 30-year at 6.5%: $2,275.44 a month. The balance reaches 80% of the home’s original value ($320,000) after 95 months, and 78% ($312,000) after 109 months.
- 15-year at 5.75%: $2,989.48 a month. The balance reaches 80% after 30 months, and 78% after 35 months.
Your servicer must drop PMI automatically at 78% if you are current on payments, and you can ask to cancel it at 80%. So the 15-year borrower stops paying PMI more than five years sooner. Read how to get rid of PMI for the rules and the faster routes.
On income taxes, the 30-year loan creates more mortgage interest: $20,695 in the first year, against $18,039 on the 15-year loan. That only helps if you itemize deductions, and most households take the standard deduction instead. Even when you itemize, the deduction returns only part of each interest dollar, so it is not a reason to pay more interest.
Who should pick which
- Pick the 15-year if your income is stable, your emergency fund is full, and you want to be debt-free by a set date, such as retirement.
- Pick the 30-year if your income varies, you are still building savings, you carry higher-interest debt, or the 15-year payment would stretch your budget.
- Pick the 30-year and prepay if you want much of the savings but need a safety valve for a bad month.
- Weigh both carefully if you expect to move within a few years. Total interest matters less when you sell early, so the lower 30-year payment counts for more.
How to decide
the higher payment is no more than about 25–28% of your gross income, you already have an emergency fund of several months’ expenses, you are contributing enough for retirement, and you have no high-interest debt.
If any of those aren’t true yet, the 30-year mortgage — with extra payments when you can afford them — is often the safer choice. Either way, compare actual Loan Estimates from several lenders, and run both scenarios in the mortgage calculator with your own price, rate, taxes and insurance.
Frequently asked questions
Is the 15-year rate always lower than the 30-year rate?
Usually, but the gap is not fixed and changes with the market and the lender. Ask for both quotes on the same day and compare the APR on each Loan Estimate; our guide to APR vs. interest rate explains what that number includes.
How much more is a 15-year payment?
In this example it is $634.69 a month more on a $320,000 loan, or about 31% more than the 30-year payment. Across the three rate pairs above, the extra ranged from $594.22 to $672.14 a month.
Can I switch from a 30-year to a 15-year loan later?
Yes, by refinancing, but that means new closing costs and whatever rate is on offer at the time. Paying extra principal on your 30-year loan gets a similar result with no new loan, and you can compare both paths in the refinance calculator.
This article is for general education and is not financial advice. Rules, rates and products vary by lender and country. See our disclaimer.
