Two loans, three strategies
A 15-year term can substantially reduce scheduled interest, but the result depends on the two rates actually offered. A broader comparison isn’t only “15-year vs 30-year”; it’s “15-year vs 30-year plus what you do with the payment difference.” The line above the notes runs that scenario: the monthly gap invested at your chosen return for 30 years, compared against the 15-year path where payments end after year 15 and the freed-up money is invested for the remaining 15.
The investment paths are sensitivity tests, not forecasts: fees, taxes, volatile returns, and missed contributions can change them materially. You can separately model additional principal on a 30-year loan in the payoff calculator, after confirming with the servicer how extra payments are applied.
Method, example, and sources
How this calculator works
The model amortizes the same principal over 360 months at the entered 30-year rate and 180 months at the entered 15-year rate. It compares principal-and-interest payments and total scheduled interest. For an equal-cash-flow comparison, it compounds the 30-year payment gap for 30 years and, on the 15-year path, compounds the former 15-year payment during years 16 through 30.
Worked example
For a $350,000 loan at 6.5% for 30 years versus 5.9% for 15 years, principal-and-interest payments are about $2,212 and $2,935. The 15-year path saves about $268,174 of scheduled interest; at a constant 7% return, the two hypothetical investment paths end near $881,289 and $930,165 respectively.
What the estimate leaves out
- Property taxes, homeowners insurance, mortgage insurance, points, closing costs, and lender-specific fees are excluded.
- Both loans are fixed-rate, fully amortizing scenarios with no refinance, late payment, or principal prepayment.
- The investment comparison assumes a constant return and monthly contributions; it excludes volatility, fees, taxes, and missed contributions and is not a forecast.
Primary sources
Frequently asked questions
Why do 15-year mortgages have lower rates?
The CFPB notes that shorter terms generally carry higher payments but lower total costs and often lower rates. The actual rate gap changes by lender, borrower, and market, so compare written Loan Estimates rather than assuming a fixed discount.
How much more is the payment on a 15-year loan?
It depends on the principal and the two rates quoted to you. The 15-year loan repays principal in half the time, so its required payment is higher; enter both written rates above to measure the actual gap.
What is the “invest the difference” argument?
This scenario gives both choices the same modeled cash outflow: the 30-year path invests the monthly payment gap, while the 15-year path invests the former mortgage payment after year 15. Either path can finish higher depending on the return entered; the constant-return result is not a market forecast.
Is there a middle path?
A borrower can ask the servicer about making additional principal payments on a 30-year loan. That can shorten payoff while leaving the scheduled payment unchanged, but it does not reproduce a 15-year quote’s rate and the exact result depends on payment timing, allocation, and any prepayment terms.
What should I compare before choosing?
Compare the required payment, total scheduled interest, both Loan Estimates, cash reserves, other debts, and the risk that a higher required payment would strain the budget. The calculator isolates the loan and investment arithmetic; it does not choose the suitable term for you.