Rates on a 15-year typically run about 0.375% to 0.50% lower than a 30-year. The monthly payment is higher, but the interest savings over the life of the loan are significant, and a much bigger share of every payment goes to principal from day one.
Where the payment goes
On a 30-year loan in the early years, most of each payment is interest. On a 15-year, the split flips much sooner. When I quote you a 15-year, I’ll show you the interest portion of the payment next to your current loan so you can see the difference in dollars, not percentages.
You don’t need a 15-year loan to pay off in 15 years
If the 15-year payoff is your goal but the payment is tight, take a 30-year and pay it like a 15. Same result if you stick to it, with a safety valve if life gets in the way. The 15-year’s advantage is the lower rate and the discipline of a required payment. The 30-year’s advantage is flexibility. Neither is wrong.
The 20-year middle ground
A 20-year fixed often lands between the two on rate and payment. If a 15-year feels like a stretch, ask me to run a 20.
Refinancing into a 15-year
For homeowners several years into a 30-year, refinancing to a 15-year can cut years off without a huge payment jump, since the balance is lower than when you started. I’ll show you the break-even and the total interest under each option.