Choosing a 15-year term over a 30-year

Payments and total interest

At 6.75% over 30 years the payment on $350,000 is about $2,270, with roughly $467,000 of interest over the full term. At 6.00% over 15 years the payment rises to about $2,954 — $684 more each month — but total interest falls to roughly $181,000.

The headline saving of about $286,000 is real but undiscounted, and it is only available if you can comfortably sustain the higher payment for fifteen years without touching reserves.

The invest-the-difference alternative

Take the 30-year loan and invest the $684 monthly difference at 7% for fifteen years: the balance reaches roughly $217,000, or about $196,000 after tax on the gains. At that point the 15-year borrower owns the home outright and can invest the entire $2,954 payment for the remaining fifteen years, ending with substantially more.

Run to year 30 and the two paths land close together, with the outcome hinging on the assumed return. Below roughly 6.5% after tax, the 15-year term wins on wealth as well as on certainty; above it, the 30-year plus discipline edges ahead.

Flexibility has value the spreadsheet misses

The 30-year loan can always be paid like a 15-year loan; the reverse is impossible. That asymmetry matters during job loss, illness or a business opportunity, and it does not appear in a comparison of totals.

The cost of that optionality here is the 0.75 percentage-point rate premium plus the interest on a slower amortisation. Whether it is worth paying depends on the stability of your income and the depth of your reserves, not on the arithmetic alone.

• • 15-year: lower rate, forced discipline, far less total interest, rigid payment
• • 30-year: higher rate, flexible payment, needs actual discipline to match
• • 30-year paid on a 15-year schedule: most of the benefit, none of the rigidity, at the higher rate

A practical default

If the 15-year payment consumes more than about 28% of gross income, or if your emergency reserve is under six months, take the 30-year and overpay voluntarily. If income is stable and the higher payment is comfortable, the 15-year term converts that comfort into a guaranteed lower cost of borrowing.

Run it yourself

Each link opens the calculator pre-filled with this scenario's numbers.

• 15 vs 30 year calculator
• Future value calculator
• Overpayment calculator

Common questions

Can I switch from a 30-year to a 15-year later?

Only by refinancing, with a full set of closing costs and whatever rate exists at that time. Overpaying a 30-year loan achieves a similar schedule without the refinance.

Does the mortgage interest deduction change the comparison?

Only if you itemise. When you do, the 30-year loan's larger interest is partly offset, narrowing but rarely reversing the 15-year advantage.

Other scenarios

• First-time buyer putting 5% down
• Pay the mortgage off early or invest the difference
• Refinancing after rates fall

Unfamiliar with a term used here? See the mortgage glossary.