15 vs 30 Year Mortgage: Payments, Interest and How to Choose

With a 15-year mortgage you have to pay your mortgage payment within 180 payments instead of 360 months. Lenders typically like this and give back a lower rate to the borrower, but the monthly payment typically is bigger and more goes to principal each month.

Here's an example: on a $400K home with a 20% down payment at rates near the national average, the payment can be seen above

Most of a 30-year payment is rent on the money at first. Roughly 89% of the first scenario goes to interest while on a 15-year it puts it at roughly 37% toward principal all the way from the first payment, building you equity much faster An amortization schedule shows the split shifting month by month.

Your loan won't match ours, so run your own price and rates through our 15 vs 30 year calculator.

This is true and it's typically by about half a percent for Fannie Mae and Freddie Mac agency rates.

National averages on conventional loans with 20% down and good credit will give you this breakdown. Read them as a benchmark and not necessarily a quote. The rate and APR that you get will depend on credit, loan type, and discount points. Discount points can buy lower interest rates on either term, and our rates page shows pricing by program.

You can, but it's the expensive way to finish in half the time. You pay the 30-year rate the whole way, which in our example costs about $112 a month more than the real thing and about $20,000 more in interest.

What that money buys is an exit. The required payment stays at the 30-year amount, so in a lean month you can drop back to it with no call to the lender. For self-employed borrowers and anyone paid on commission, that fallback is the whole case for the plan.

Send the extra marked for principal, in writing or through your servicer's principal-only option, so it isn't held as next month's payment. Our payoff calculator will size the amount. Nothing will force the extra so the plan only lasts as long as you'll keep sending the payment

Before you start, check the "Prepayment Penalty" line on page 1 of your Loan Estimate. Regulation Z limits penalties to certain fixed-rate qualified mortgages, in the first three years only, at no more than 2% of the amount prepaid.

Yes. The 15-year's bigger payment goes straight into your debt-to-income ratio, which lenders get by dividing your monthly debts by gross income.

Fannie Mae's Selling Guide caps that ratio at 50% on Desktop Underwriter approvals. Manual underwriting stops at 36%, or 45% with the credit score and reserves Fannie's eligibility matrix requires.

In our example, the extra $627 a month on the shorter loan takes about $1,390 more gross monthly income to stay at 45%. Put the other way, the longer term qualifies the same income for a larger loan amount. Our income guide shows the full math.

In Texas, run a property tax estimate before you pick a term. Taxes and insurance usually sit in the escrow account on both loans and don't shrink on a 15-year. A large escrow will eat the debt income before the 15-year PITI payment is counted or calculated

The shorter term helps on both conventional and FHA loans. Put 10% down on the same home with a conventional loan and the 15-year's scheduled principal balance hits 78% of the original value in about three years. At that point the Homeowners Protection Act requires the servicer to drop private mortgage insurance (PMI) if you're current. The longer loan takes about ten.

Fannie Mae also sets standard coverage at 12% instead of 25% at that down payment when the fixed term is 20 years or less, and thinner coverage costs less.

FHA's annual premium drops on a mortgage term of 15 years or less, too. At the minimum down payment it falls to 0.40% a year from 0.55%.

Both rates apply to base loans of $726,200 or less (HUD mortgagee letter).

Settle the 15 vs 30 year mortgage choice on the payment you could still carry in a bad year.

When the 15-year fits

The 15-year wins when its higher monthly payments still leave room for everything else. That takes steady income such as a salary or pension, an emergency fund that survives closing, retirement contributions that keep running and a payoff date you care about, like a child's first tuition bill.

When the 30-year fits better

The downside of a 15-year is a payment that's locked in. It can't drop when income does, and the equity it builds is hard to reach without selling or borrowing against the house. The lower monthly payments of a 30-year suit uneven income, thin savings, other financial obligations such as higher-rate debt, or a 401(k) match you'd skip to afford a bigger payment.

If you'd rather invest the difference, every extra principal dollar earns your mortgage rate with no risk, so other investments have to beat that after taxes.