How Much Money Could a 15-Year Mortgage Save You on an Average Home?

by Christy Bieber | Updated July 19, 2021 - First published on April 27, 2021

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With a 15-year mortgage, you could save tens of thousands of dollars, but is it worth it?

According to the National Association of Realtors, the median cost to purchase an existing home recently hit a record high of $329,100. With home costs soaring, chances are good you'll need a mortgage to buy a median-priced home. And you'll need to decide if you want a 15-year or a 30-year loan.

This decision can be more complicated than it seems: While a 15-year mortgage comes with much higher monthly payments, it could save you a lot of money over time. You'll have to consider whether making such high monthly payments is worth the savings you'll realize over the life of your loan.

To help you make that choice, let's take a look at how much money a 15-year mortgage could save you on an average home purchased for the current median price.

This is how much a 15-year mortgage could save you

A 15-year mortgage can come with substantial savings compared with a 30-year loan for two primary reasons:

  • The interest rate is usually lower on loans with a shorter payoff time
  • You'll pay interest for half the time.

So what would you save exactly if you opted for a 15-year mortgage? Let's do the math.

If you're buying a $329,100 home, you won't borrow that full amount -- you'll need to pay some of it right away as a down payment. Ideally, that will be at least 20% so you can avoid having to buy private mortgage insurance -- a policy you pay for to protect against lender losses in case of foreclosure. So if you put 20% down, you'd borrow $263,280.

As of April 23, 2021, average mortgage rates for a 30-year fixed rate loan were 3.156% while average rates for a 15-year loan were 2.422%. The table below shows the monthly payments as well as total repayment costs over time for a $263,280 loan for both the 15-year and 30-year mortgage options.

Loan Term 15-Year Mortgage 30-Year Mortgage
Interest Rate 2.422% 3.156%
Monthly Payment $1,746 $1,132
Total Loan Repayment Cost $314,257 $407,618
Source: Author's calculations.

While the 30-year loan would save you $614 per month, you'd pay far more over time -- around $93,361 more.

Of course, the specific amount you'd save in your situation depends on how much you borrow and what rates you could qualify for. But this gives you a good idea of how much less you might pay if you buy an average home with a 15-year vs. a 30-year mortgage.

Should you opt for a 15-year loan?

While the savings is clearly substantial on a 15-year loan, you're tying up a lot of extra money each month if you choose this option. That's money you can't invest or do other things with.

If you have other high-interest debt, a 15-year mortgage may not be your best option. Instead, with the monthly savings you'd get with a 30-year loan, you could pay extra toward your costlier debts. Since mortgage loans tend to come at very low rates and interest may be tax deductible, it makes more sense to take the longer mortgage loan.

Likewise, the return on investment you get from paying off your mortgage early probably won't be as good as the returns you could earn by investing in the stock market. That's why you may very well be better off opting for the 30-year loan and investing the extra $614 per month instead.

Ultimately, the best option depends on you and your priorities. A 15-year mortgage can get you debt-free faster. But the 30-year mortgage offers far more flexibility with your budget during the repayment period.

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