Here's How Much You Might Save on a $300,000 Mortgage if You Pay It Off in 15 Years

Houses are expensive these days, and so are mortgages. Clearly, that's not the best combination. And so you may be eager to do what you can to make homeownership more affordable in the long run.

One option you may be considering is signing a 15-year mortgage instead of a 30-year loan. As of the writing, Freddie Mac puts the average mortgage rate on a 30-year loan at 6.82%. On a 15-year loan, it's 6.06%. That's a pretty big gap, and it could result in savings in the course of paying off your home.

But is a 15-year loan a smart bet for you for a $300,000 mortgage? You might save a lot of money on mortgage interest, but whether you end up happy with that choice is questionable.

An idea that might backfire on you

If you sign a 30-year, $300,000 mortgage today at 6.82%, your monthly principal and interest payments will be $1,959. If you sign a 15-year, $300,000 mortgage today at 6.06%, your monthly principal and interest payments will be $2,541.

All told, you're paying an extra $582 a month, or $6,984 a year, for a 15-year loan. But the interest savings you might reap could be enough to drive you in this direction.

With a 15-year loan, the total interest charged on your mortgage is $157,435. With a 30-year loan, it's $405,234. That's a total difference of about $248,000. So if you can fit the higher monthly payments into your budget, you may decide a shorter mortgage is worth getting.

There is, however, a potential flaw in that plan. First, if you allocate an extra $582 a month to your mortgage payments, you might leave yourself without enough money to cover your remaining expenses. And even if you can cover your essential remaining bills, will spending that extra $582 a month on housing make it so you're never able to go see a concert, grab takeout, or spend on other things that make your life easier or more convenient?

Also, what if you work hard all year long and deserve a break? Will spending almost $7,000 extra per year on your mortgage make it so you're not able to take vacations? That doesn't seem fair to you.

It's also worth noting that you could earn a lot more by investing the money you'd put toward a higher mortgage payment. The stock market's average annual return over the past 50 years has been 10%. So if you invest $582 a month over 30 years, you might end up with over $1.1 million if you snag that same 10% return in your portfolio. That puts you ahead financially compared to saving $248,000 on mortgage interest.

This illustration is worth considering. But it also sort of misses the point in that committing to higher mortgage payments (or committing to parting with that extra money every month by investing it) could make your life more difficult year to year while you're paying off your home. So while a 15-year mortgage can save you money, it may not be a route you want to take.

Think twice before committing to a 15-year loan

Even if you've run the numbers and are sure you can afford a 15-year mortgage and the higher monthly payments that come with it, you may end up regretting that decision if your financial situation changes. So you may want to consider signing a 30-year mortgage, but making extra payments on your home as money allows you to.

That way, you're not committed to making those higher payments. If there's a year you want to take a big vacation, you'll have that option without defaulting on your loan obligation. But that way, you can potentially save yourself some money on mortgage interest without being locked into higher payments that could end up being a burden.