● Money & small business
15-year vs 30-year mortgage on $300,000: the payment, the interest, and the option in between
A 15-year mortgage costs more each month and far less in total. But there's a third option: take the 30-year loan and pay it as if it were a 15-year. Here's what each costs on a $300,000 loan, computed month by month with the same amortization model as our mortgage payoff planner, which was checked cent by cent. The rates are examples: use the ones you're quoted.
Same rate: 6.5% on both
| $300,000 at 6.5% | Monthly payment | Total interest |
|---|---|---|
| 30-year loan | $1,896.20 | $382,636.71 |
| 15-year loan | $2,613.32 | $170,398.28 |
| 30-year loan, paying $717.12 extra a month | $2,613.32 | $170,398.28 |
The 15-year loan costs $717.12 more a month and saves $212,238.43 of interest. Paying the 30-year loan with the same $2,613.32 pays it off in 181 payments, the last one a small one, with exactly the same interest. The difference is that on the 30-year loan the extra is optional: in a tight month you can drop back to $1,896.20.
With a lower 15-year rate
Lenders often price 15-year loans lower. If the 15-year rate is 5.75% while the 30-year stays at 6.5%:
| $300,000 | Monthly payment | Paid off in | Total interest |
|---|---|---|---|
| 30-year at 6.5% | $1,896.20 | 30 years | $382,636.71 |
| 15-year at 5.75% | $2,491.23 | 15 years | $148,421.55 |
| 30-year at 6.5%, paying $595.03 extra a month | $2,491.23 | 16 years 4 months | $187,166.69 |
Now the same monthly payment does more on the 15-year loan: paid off 16 months sooner and $38,745 less interest than prepaying the 30-year loan. That $38,745 is the price of keeping the flexibility. With the 15-year rate at 6% instead, prepaying the 30-year loan takes 15 years 11 months and costs $181,250.66 of interest, against $155,682.79 on the 15-year loan, a $25,568 difference.
Other loan sizes (30-year at 6.5%, 15-year at 5.75%)
| Loan | 30-year payment | 30-year interest | 15-year payment | 15-year interest |
|---|---|---|---|---|
| $200,000 | $1,264.14 | $255,086 | $1,660.82 | $98,948 |
| $300,000 | $1,896.20 | $382,637 | $2,491.23 | $148,422 |
| $400,000 | $2,528.27 | $510,180 | $3,321.64 | $197,895 |
How to choose
- Get both quotes. The rate gap between the 15- and 30-year loan is what the 15-year's commitment is really buying.
- Check the 15-year payment against your budget in a bad month, not a normal one. If it only fits in good months, the 30-year loan with voluntary extra payments gives you most of the savings with a way out.
- If you take the 30-year loan and plan to prepay, make it automatic and check your lender applies extra payments to principal.
- Money that goes to the mortgage isn't available for other goals, such as an employer's 401(k) match or an emergency fund.
To see what your own extra payments do, the free mortgage extra payment calculator uses the same amortization. How much an extra mortgage payment saves has the table for $100 to $1,000 a month. Every figure above comes from the month-by-month model in our mortgage payoff planner, with each payment rounded to the cent. Not financial advice.