15-Year vs. 30-Year Mortgage: Which Is Better?

A 15-year mortgage costs far less in total interest and builds equity much faster, but it comes with a significantly higher monthly payment. A 30-year mortgage keeps your payment lower and more flexible, at the cost of paying much more interest over time. Neither is better for everyone: the right choice depends on whether the 15-year payment fits comfortably in your budget alongside your other goals.

Below, you’ll see the two loans compared side by side with real numbers, a middle path that combines some benefits of both, and questions to help you decide.

How the two loans differ

Both are usually fixed-rate loans that are fully paid off by the end of the term. The difference is how fast you pay down the principal:

• Shorter term, bigger payments. You repay the same amount in half the time, so each payment is larger and more of it goes to principal from the start.
• Lower rate, typically. Lenders usually offer lower interest rates on 15-year loans than on 30-year loans, though the gap varies.
• Less time for interest to build. Interest is charged on the outstanding balance, so a balance that falls faster generates less interest.

Our guide on how loan amortization works explains why early payments on a long loan are mostly interest.

A worked example: $320,000 borrowed

Say you’re buying a $400,000 home with $80,000 down, so you’re borrowing $320,000. For illustration, assume a 6.5% rate on the 30-year loan and a 5.75% rate on the 15-year loan. These are hypothetical rates; your actual offers will depend on the market, your credit and the lender.

The 15-year loan costs $634.69 more each month, but it saves about $249,826 in interest over the life of the loan. After 10 years, you’d owe roughly $133,000 less on the 15-year loan, which means far more equity in your home.

These figures cover principal and interest only. Property taxes, homeowners insurance and any HOA dues or mortgage insurance would be added to either payment. The mortgage calculator shows the full monthly cost; set the term to 15 or 30 years and adjust the rate to compare.

Where your money goes in the first year

The difference shows up right away. In the first 12 months of the 30-year loan, you’d pay about $20,694.69 in interest and only $3,576.72 toward principal. On the 15-year loan, you’d pay about $18,038.80 in interest and $13,848.94 toward principal.

In other words, the 15-year borrower pays about $7,616 more in total during year one, but cuts the loan balance by almost four times as much. That faster principal reduction is what drives the huge interest saving over the life of the loan.

How much of the saving comes from the rate?

Part of the 15-year advantage comes from the lower rate, and part comes from the shorter term. If both loans had the same 6.5% rate, the 15-year payment would be $2,787.54 and total interest would be $181,757.84. That’s still about $226,385 less than the 30-year loan, so most of the saving comes from paying the loan off faster.

The middle path: a 30-year loan with extra payments

You don’t have to choose all or nothing. Many borrowers take a 30-year loan and voluntarily pay extra toward principal when they can. (Check that your loan has no prepayment penalty, and ask your servicer to apply extra payments to principal.)

Using the same $320,000 loan at 6.5%:

Paying the same total amount each month as the 15-year loan, but on the 30-year loan, gets you debt-free in about 16 years and 4 months. You’d pay more interest than the true 15-year loan because of the higher rate, but you keep a crucial option: if money gets tight, you can drop back to the required $2,022.62 payment.

Pros and cons at a glance

15-year mortgage

• Much less total interest
• Typically a lower rate
• Builds equity quickly
• Mortgage-free sooner, which can matter if you want to retire without a house payment
• Higher required payment leaves less room for saving, investing or emergencies
• The higher payment can make it harder to qualify

30-year mortgage

• Lower required payment and more budget flexibility
• May let you qualify for a home that fits your needs
• Frees up money for retirement accounts, an emergency fund or other goals
• Option to prepay when you can
• Much more total interest
• Slower equity growth

How to decide

Ask yourself these questions:

1. Does the 15-year payment fit comfortably? Run it through your budget using take-home pay, not just what a lender approves. Our guide on how much house you can afford explains the debt-to-income ratios lenders use.
2. Do you have an emergency fund? A large, locked-in payment is risky without savings to fall back on.
3. Are you saving for retirement? If the higher payment would stop you from contributing to a workplace plan or an IRA, the 30-year loan plus steady saving may serve you better. Our guide to Roth vs. traditional IRAs covers the basics of those accounts.
4. How long will you stay in the home? If you might sell in a few years, the long-term interest saving matters less than your monthly cash flow.
5. How steady is your income? Variable income argues for the lower required payment of a 30-year loan.
6. Do you value being debt-free? For some people, the peace of mind of owning their home outright years sooner is worth a tighter budget now.

What about a 20-year mortgage?

If 15 years feels too tight and 30 years too long, ask lenders about a 20-year term. Using the same $320,000 loan and a hypothetical 6.25% rate, the monthly principal and interest would be $2,338.97, and total interest would be about $241,352.86.

That’s about $316 a month more than the 30-year loan but roughly $318 a month less than the 15-year loan, while saving around $166,790 in interest compared with the 30-year option. Rates for in-between terms vary by lender, so get quotes for each term on the same day.

The opportunity cost of a bigger payment

Every extra dollar you put toward a mortgage is a dollar you can’t use for something else. Paying down a mortgage early gives you a guaranteed return equal to your interest rate, which is attractive, especially at higher rates. But money locked into home equity is hard to get back out quickly; you’d generally need to sell, refinance or borrow against the home.

That’s why many people make sure a few things are in place before choosing the larger payment:

• An emergency fund that could cover several months of expenses.
• No high-interest debt, such as credit card balances, which usually cost more than a mortgage.
• Regular retirement contributions, especially if an employer matches them.

If all three are covered and the 15-year payment still fits, the guaranteed interest saving is hard to argue with.

What about PMI?

The loan term doesn’t remove the need for private mortgage insurance on a conventional loan with less than 20% down, but a shorter term pays the balance down faster. That means you reach the point where PMI can be canceled sooner. Our guide to what PMI is explains the rules.

The bottom line

In our example, a 15-year mortgage saves about $250,000 in interest compared with a 30-year loan, but costs about $635 more each month. If that payment fits easily and you’re already saving for emergencies and retirement, the 15-year loan is a powerful way to save money. If it would stretch you, a 30-year loan with extra payments when you can afford them offers much of the benefit with far more flexibility.

This content is for educational purposes only and isn't financial advice. Calculator results are estimates based on the numbers you enter. For decisions about your situation, consider talking with a qualified professional. Read our full disclaimer.