The 15-year mortgage is the single biggest interest saver there is — but it comes at a cost in monthly cash flow. Here is the honest comparison.
A shorter term means a lower rate and far less interest. On a $400,000 loan at 6%, a 15-year term saves over $200,000 in interest compared to 30 years.
The monthly payment is roughly 50% higher, because you are paying the same principal back in half the time. That higher payment is locked in — it does not care if you lose a job.
Take the 30-year for flexibility, then pay extra as if it were a 15-year. You get most of the interest savings with none of the forced commitment. If money gets tight, you drop the extra.
The 15-year only makes sense when the higher payment is comfortable and you have a full emergency fund. Otherwise, the 30-year plus extra payments wins. Change the term on our calculator to see both scenarios.
Reading is step one. Step two is running your own numbers — taxes, insurance, PMI and all.
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