The Moment
You are buying a home or refinancing, and the mortgage officer is asking: 15-year or 30-year? The 15-year has a lower interest rate and saves tens of thousands in interest. The 30-year has lower monthly payments and more breathing room. Both have valid arguments.
The Numbers
Example: $300,000 mortgage
| | 15-Year (6.0%) | 30-Year (6.75%) | |---|---|---| | Monthly payment | $2,532 | $1,946 | | Total interest | $155,683 | $400,459 | | Monthly difference | — | $586 less |
The 15-year saves $244,776 in total interest. That is dramatic. But the monthly payment is $586 higher — and that reduced flexibility has a cost of its own.
What $586/month of flexibility buys you: - A fully funded emergency fund in 18 months - $586/month invested at 7% for 30 years = $715,000 - A buffer against job loss, medical expenses, or life changes - The ability to invest the difference at a potentially higher return than the mortgage rate
The Hybrid Strategy
Take the 30-year mortgage. Make 15-year payments when you can.
This is the strategy most financial planners recommend. You get: - The lower required payment of a 30-year (safety net) - The interest savings of paying extra (when cash flow allows) - Full flexibility to reduce to minimum payments during financial stress
How it works: On a $300,000/30-year mortgage at 6.75%, pay $2,532/month instead of the required $1,946. You pay off the mortgage in approximately 17 years — close to the 15-year timeline — but with the safety of being able to drop to $1,946 if needed.
The only drawback: The 30-year rate is typically 0.5-0.75% higher than the 15-year rate. Over the full term, this costs more in interest. But the flexibility to invest the difference or weather financial storms makes this trade-off worthwhile for most people.
Run Your Numbers
Enter your mortgage details to compare both terms.
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What to explore next
- →Should I make extra mortgage payments or invest?
- →How do I remove PMI from my mortgage?
- →When does it make sense to refinance?
Frequently Asked Questions
When should I choose a 15-year mortgage?
If the higher payment is less than 25% of your gross income, you have a fully funded emergency fund, and you have high confidence in your income stability for the next 15 years. The discipline of the locked-in higher payment can be valuable if you would otherwise spend the difference.
Should I put extra money toward the mortgage or invest it?
If your mortgage rate is below 5%, investing the extra payments in index funds likely produces better long-term returns (7-10% historical average vs 4-5% mortgage rate). If your rate is above 7%, paying the mortgage faster gives a guaranteed return that is competitive with stocks.