A 15-year mortgage costs dramatically less in total interest than a 30-year. It also costs dramatically more per month. The right choice depends on whether the higher payment disrupts other priorities.
The numbers
$400,000 loan. Current rates:
- 30-year at 7% — monthly P&I $2,661. Total interest ~$558k.
- 15-year at 6.5% — monthly P&I $3,485. Total interest ~$227k.
The 15-year saves $331k in interest but demands $825 more per month. Over 15 years that's $148,500 in extra payments — far less than the $331k saved.
Why the 15-year rate is typically lower
Lenders take less duration risk on a 15-year loan — less exposure to future rate shifts. So they charge 0.25–0.75% less in rate. The spread compounds the savings.
The real trade
The 15-year isn't strictly "better". It's a different risk profile:
- 15-year — lower total cost, faster equity, higher monthly obligation, less flexibility if income drops.
- 30-year — higher total cost, slower equity, lower obligation, more flexibility.
The hybrid strategy
Take the 30-year mortgage — the lower obligation gives you safety. Then voluntarily pay it like a 15-year. If your income is stable, you get the same payoff speed. If something goes wrong (job loss, illness), you can drop back to the 30-year payment without refinancing.
Downside: you usually pay a slightly higher rate on the 30-year vs taking a 15-year outright. But the optionality is worth real money — especially for families with variable income or early in careers.
Model both terms. See total interest + monthly payment side by side.