How to Compare a 15-Year Mortgage With a 30-Year

The cost of your home is more than just the amount you paid for it.

The cost of your home is more than just the amount you paid for it.

You can compare mortgages with differing time periods. Mortgage payments consist of interest, the amount you pay the lender for using their money; and principal, the actual money you borrowed. If you took a 5-percent interest rate loan of $100,000 for 30 years, your payment would be $536.82 per month. The same $100,000 at 5 percent paid in 15 years would cost you $790.79, or an additional $253.97 per month. Over the life of the 30-year loan, you'd pay $93,255.78 in interest. In contrast, you’d only pay $42,342.85 in total interest on a 15-year loan.

Pay the extra money toward principal that you'd pay on a 15-year mortgage to a 30-year mortgage payment. This makes your 30-year mortgage mirror the 15-year mortgage. In the example, the difference was $253.97. You'll find that you pay the same interest over the life of the loan and the same monthly payment. The difference comes if you find yourself in a financial bind. You can always lower your extra principal payment or eliminate it on the 30-year mortgage. However, you're locked into the payment on the 15-year mortgage. It might make a difference in paying your monthly payment in full or receiving a late penalty from the mortgage company.

Check the interest rates to make certain that they're the same. No matter how long your mortgage, the higher the interest rate, the less attractive the deal. A 15-year mortgage with a higher interest rate costs you more if all other things are equal, since you could pay extra to principal on a 30-year mortgage to turn it into a 15-year payoff.

Find out how much you'll pay in PMI. PMI, short for private mortgage insurance, is an additional cost to protect the lender. It varies in amount by the percentage of down payment to the cost of the home, length of the mortgage and type of loan. Since the PMI is a percentage of the loan, find the percent for both the 15-year loan and the 30-year loan. Since the law requires lenders to cancel PMI once you've paid 22 percent of the original purchase value, calculate the number of payments it takes on the 15-year loan. If you're paying additional principal payments, it should take the same number of payments on the 30-year loan. Multiply both the 15-year monthly PMI and the 30-year monthly PMI by the number of payments. The difference between the two is the additional cost of a 30-year mortgage.

Verify whether you have to pay points to receive the lower rate. If you have a 30-year mortgage with the same rate as a 15-year mortgage but have to pay points to get that rate, you're actually paying more in interest. The points are a percentage of the mortgage and similar to paying interest upfront to get a lower rate. Any points add extra cost to your mortgage and need consideration when you make calculations. Add the number of points to the amount of interest you pay to the 15-year mortgage and the 30-year mortgage with extra principal payments.

Total up the interest, the extra points and the excess PMI to find which one saves the most. If you make the same payment on your 30 year loan by increasing the principal payment to the same amount as the 15-year loan, but you don't pay it off in the same amount of time, the 30 year loan costs more. Sometimes a mortgage with a higher bottom line actually suits your situation better. Although it doesn't save you the most money, it might be the best financial decision.


About the Author

Jay P. Whickson worked as an insurance rep, financial planner and stockbroker from 1979 until her retirement in 2007 when she began writing about the field of finance. Whickson has both a Bachelor of Science and a Master of Science in education from Indiana University. She also has post Masters courses in science and a number of different insurance and investment designations and degrees.

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