A 15-year mortgage has higher monthly payments but lower interest rates and you pay off the loan in half the time. A 30-year mortgage has lower monthly payments and more flexibility but you pay significantly more interest over the life of the loan. On a $300K loan at 6.5%, a 15-year costs $2,614/month vs a 30-year at $1,897/month. The 15-year saves $213K in interest.
Payment and Interest Comparison
On a $300K loan at 6.5%: 15-year payments $2,614/month, total interest $170K. 30-year payments $1,897/month, total interest $383K. The 15-year saves $213K in interest but costs $717 more per month. The rate on a 15-year is typically 0.5-0.75% lower than a 30-year, adding to the savings.
Total Interest Savings with a 15-Year
The total interest savings with a 15-year vs 30-year can be enormous. On a $300K loan: $213K saved. On a $400K loan: $284K saved. The savings grow with larger loan amounts and higher rates. The tradeoff is the higher monthly payment reduces your cash flow flexibility.
When Each Loan Term Makes Sense
Choose a 15-year when: you can comfortably afford the higher payment, you want to minimize total interest, you plan to stay in the home for the long term, or you are nearing retirement. Choose a 30-year when: you need lower payments to qualify, you want cash flow flexibility, you plan to invest the difference, or you expect to move within 5-10 years.