15 vs 30-year mortgage
15-Year vs 30-Year Mortgage
Half the term, double the monthly payment, less than half the total interest. But the right answer isn't always the cheaper-on-paper one.
15-year fixed
Higher monthly, much lower total cost, faster equity.
30-year fixed
Lower monthly, more interest paid, more cash flow flexibility.
At a glance
| 15-year fixed | 30-year fixed | |
|---|---|---|
| Typical rate vs benchmark | 0.5–0.75% lower than 30-year | Industry benchmark rate |
| Monthly payment ($400K loan @ 6.5%) | ~$3,485 (approx.) | ~$2,528 (approx.) |
| Total interest paid ($400K @ 6.5%) | ~$227,000 | ~$510,000 |
| Equity at year 5 | ~$94,000 | ~$26,000 |
| Cash flow flexibility | Locked into higher payment | Lower obligation, optional prepay |
| Opportunity cost | Less to invest each month | More headroom to invest the difference |
| Best when… | Income is stable and you want guaranteed payoff | Income is variable or you want max liquidity |
Pick 15-year fixed
Pick the 15-year if your income is stable, you can comfortably afford the higher payment with margin to spare, and you value guaranteed debt-free ownership over investment flexibility. The 0.5–0.75% rate discount alone is worth $50K+ on a $400K loan.
Pick 30-year fixed
Pick the 30-year if you're early-career with rising income, your priority is maximizing cash flow for investing or business reinvestment, or you want a safety buffer in case of income disruption. You can always pay it off early — the optionality has real value.
The 'invest the difference' argument
The classic case for the 30-year is: take the lower payment, and invest the difference between 15-year and 30-year monthly payments in the stock market. Historically, the S&P 500 has returned ~7% real, well above any mortgage rate. If you're disciplined enough to actually invest the difference every month for 30 years, this math wins on average.
The catch: most people don't actually invest the difference. They lifestyle-creep into a bigger house or new car. The 15-year is a forced-savings vehicle that doesn't depend on your willpower.
Equity buildup matters more than you think
On a 30-year loan, your first few years are 70%+ interest. On a 15-year, the very first month is roughly 50/50 principal/interest. That gap compounds: by year 5 of a $400K loan at 6.5%, you'll have built nearly 4× more equity with a 15-year than a 30-year. If you might sell or relocate within 7–10 years, the 15-year recovers significantly more of your money in a sale.
Hybrid: 30-year with extra principal
Many borrowers get the best of both: take the 30-year loan for the lower required payment, then voluntarily pay extra principal each month to mimic a 15-year payoff. This gives you the cash flow safety of the 30-year (you can always drop back to the minimum in a tight month) plus most of the interest savings.
The trade-off: 30-year rates are higher than 15-year rates, so even at the same payoff timeline you'll pay more total interest than a true 15-year. But the optionality is often worth the small premium.
What about a 20-year mortgage?
20-year mortgages exist as a middle-ground option. Rates are usually slightly higher than 15-year but lower than 30-year. They make sense if the 15-year payment is uncomfortable but the 30-year feels too slow. They're less commonly offered than 15s and 30s, so shop around — not every lender has competitive 20-year pricing.