How to Decide Between 15-Year and 30-Year Fixed Mortgages

Compare 15-year vs 30-year mortgages by evaluating monthly payments, total interest, and your financial priorities.

1. Calculate the monthly payment difference. Get quotes for both loan terms on the same loan amount. The 15-year loan will have a higher monthly payment but typically a lower interest rate. For a $300,000 loan, expect to pay roughly $700-900 more per month with a 15-year term.
2. Check if you can afford the 15-year payment. Add the higher monthly payment to your other fixed expenses. Your total housing costs should stay under 28% of your gross monthly income. If the 15-year payment pushes you over this threshold or leaves no room for emergencies, stick with the 30-year term.
3. Compare total interest paid over the life of each loan. Multiply each monthly payment by the number of payments, then subtract the original loan amount. The 15-year loan typically saves $100,000-200,000 in total interest compared to the 30-year loan, depending on loan size and rates.
4. Consider what you'd do with the payment difference. If you choose the 30-year loan, you'll have extra cash each month. If you'd invest that difference in index funds or use it to pay off higher-interest debt, those moves might beat the interest savings from a 15-year mortgage.
5. Factor in your other financial goals. Choose the 15-year loan if you're on track with retirement savings and want to own your home outright sooner. Choose the 30-year loan if you need flexibility for other goals like building an emergency fund, maxing out retirement accounts, or saving for kids' college.
6. Remember you can always pay extra on a 30-year loan. A 30-year mortgage gives you the option to make extra principal payments when you have surplus cash, but doesn't require them. This flexibility can be valuable if your income varies or you have competing financial priorities.