15-year mortgage

A home loan repaid over 15 years, with higher monthly payments than a 30-year loan but far less total interest.

What it means

A 15-year mortgage spreads repayment over 180 monthly payments. Because the balance is paid down twice as fast as on a 30-year loan, less interest accrues, and lenders usually offer a somewhat lower rate on the shorter term as well.

The tradeoff is a noticeably larger monthly payment. This term tends to suit borrowers with steady, higher income who want to own the home outright sooner, such as people refinancing in midcareer or planning to be mortgage-free by retirement.

Formula

M = P × r(1 + r)^n / ((1 + r)^n − 1)

M = monthly payment (principal and interest)
P = amount borrowed
r = annual interest rate ÷ 12
n = total number of monthly payments

Example

For illustration, on $300,000 a 15-year loan at 5.5% costs about $2,451.25 a month and about $141,225 in total interest. A 30-year loan at 6% costs about $1,798.65 a month but about $347,515 in interest, roughly $206,290 more.

How it’s used

Paying off a home before retirement
Refinancing a loan that already has years of payments behind it
Building equity quickly

Strengths and weaknesses

Strengths

Much lower total interest
Usually a lower rate than a 30-year loan
Equity builds fast

Weaknesses

Higher monthly payment reduces budget flexibility
May qualify the borrower for a smaller loan amount
Less cash left over for saving, investing or emergencies

Good to know

A 30-year loan with voluntary extra payments can mimic a 15-year schedule while keeping a lower required payment, though usually at a higher rate.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.