Take a hypothetical buyer borrowing $320,000 to buy a home. The lender offers two fixed-rate options: a 30-year loan at 6.75% and a 15-year loan at 6.00%. Those rates are illustrative, but the gap between them is realistic. In Freddie Mac’s Primary Mortgage Market Survey for early September 2026, the average 15-year rate sat roughly two-thirds of a percentage point below the average 30-year rate.
Here is what each option costs, principal and interest only:
- 30-year at 6.75%: $2,075.51 a month. Over 360 payments, total interest comes to about $427,185.
- 15-year at 6.00%: $2,700.34 a month. Over 180 payments, total interest comes to about $166,062.
The shorter loan costs about $625 more per month and saves roughly $261,000 in interest over the life of the loan. That headline number is real, but it is also the least useful way to make the decision. Almost nobody keeps the same mortgage for 30 years. People sell, refinance or pay ahead. So the more practical comparison is what happens in the first five and ten years.
The same loan, side by side
| 30-year at 6.75% | 15-year at 6.00% | |
|---|---|---|
| Monthly principal and interest | $2,075.51 | $2,700.34 |
| Interest paid in first 5 years | about $104,900 | about $85,300 |
| Balance left after 5 years | about $300,400 | about $243,200 |
| Balance left after 10 years | about $273,000 | about $139,700 |
| Total interest if held to term | about $427,200 | about $166,100 |
| Required payment flexibility | High: lower floor, extra payments optional | Low: higher payment every month |
Figures assume a fixed rate, on-time payments and no extra principal. Property taxes, homeowners insurance and any mortgage insurance would be added to both payments and do not change with the term.
Where the 15-year pulls ahead fast
Look at the five-year row. After 60 payments on the 30-year loan, the hypothetical borrower has reduced the balance by only about $19,600. On the 15-year loan, the balance has dropped by about $76,800. That is the amortization schedule at work: early payments on a long loan are mostly interest, while a short loan pushes far more of each payment into principal from the start.
By year ten, the gap is about $133,000 in equity. If this buyer sells the house in year ten, the 15-year borrower walks away with that much more cash before any change in home value. The extra $625 a month for ten years adds up to $75,000, so the shorter term turned $75,000 of extra payments into about $133,000 of additional equity, thanks to the lower rate and the faster principal paydown.
The lower rate is doing a lot of the work here. Lenders typically price 15-year loans below 30-year loans because they get their money back sooner and carry less interest-rate risk. You only get that discount by committing to the shorter term.
The middle path: a 30-year paid like a 15-year
A common suggestion is to take the 30-year loan and voluntarily pay the 15-year amount. Here is how that plays out in the same hypothetical. Paying $2,700.34 a month on the 30-year loan at 6.75% retires it in about 196 months, a bit over 16 years, with total interest of about $208,800.
That is far better than the standard 30-year schedule, but it still costs about $42,700 more than the actual 15-year loan, because the rate is higher. What you buy with that $42,700 is an option: in a tight month, you can drop back to the $2,075.51 required payment without any penalty or default.
Whether that option is worth the price depends on how stable your income is and how disciplined you are about extra payments. Plenty of people intend to prepay and stop after the first surprise expense. Before using this approach, check that the loan carries no prepayment penalty and that extra payments go straight to principal. Our guide to paying off a loan early covers how to confirm both.
What the bigger payment does to your approval
The 15-year payment is about 30% higher, and lenders measure it against your income. In this example, the difference is $625 a month before taxes and insurance. For a household near the edge of a lender’s limit, that alone can mean qualifying for a smaller loan on the shorter term, or not qualifying at all. Our explainer on debt-to-income ratio walks through how lenders run that math.
It is worth getting quotes on both terms during preapproval so you see the actual rate spread you are offered, not a national average.
Costs that don’t show up on the amortization table
A pure interest comparison leaves out a few things that can change the answer:
- Opportunity cost. The $625 a month could go somewhere else. If it would otherwise fill a 401(k) match you are leaving on the table, or pay down a credit card at 22%, the mortgage is not the best use of it. If it would otherwise sit in checking, the 15-year wins easily.
- Liquidity. Home equity is not cash. You can only reach it by selling, refinancing or borrowing against it, and all three cost money and depend on lender approval. A household that puts every spare dollar into the 15-year payment but has a thin emergency fund is trading interest savings for fragility.
- The mortgage interest deduction. Only itemizers benefit, and with the current standard deduction most households don’t itemize. For those who do, the 30-year loan’s larger interest payments produce a larger deduction, but you are still spending a dollar of interest to save a fraction of a dollar in tax.
- Refinancing. If rates fall meaningfully, either loan can be refinanced. If rates rise, the borrower locked into a low fixed rate on a 30-year term keeps that cheap money longer.
Which term to choose
The 15-year loan tends to make sense when the higher payment fits comfortably inside your budget with room left over, you already have a solid emergency fund, you are capturing any employer retirement match, and you have no high-interest debt. In that situation, the lower rate and rapid equity build are hard to beat, and the forced discipline is a feature.
The 30-year loan tends to make sense when the 15-year payment would stretch you, your income is variable or commission-based, you are still building savings, or you expect to move within a few years and would rather keep cash flexible. Taking the longer term and prepaying when you can is a reasonable compromise, as long as you are honest about whether the prepayments will actually happen.
A quick way to test it: take the difference between the two payments and move it into a separate savings account every month for three to six months before you lock. If you can do that without strain or dipping back into it, you have real evidence the shorter term fits. If you can’t, the 30-year loan’s lower floor is probably worth what it costs.
