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15 vs. 30 year Mortgage Comparison Calculator


The above Mortgage Payment Calculator provided courtesy of iloancalculator.com




Use this calculator to find out how much money you can save overall by choosing a 15-year mortgage over a 30-year mortgage. Or use the calculator to find out how much lower your monthly payment will be with a 30-year mortgage. You can also see how big of an effect mortgage amount (principal) and interest rate have on 15-year and 30-year mortgages. Monthly payment size, total interest paid, and total costs are all presented. In other words, the calculator helps you understand the amortization of a mortgage relative to the term (15 years or 30 years), interest rate, and mortgage amount.

The calculator shows you the total cost of the mortgage. It looks at interest you'll pay and the federal mortgage interest tax deduction you'll save. The calculator assumes that you are paying a fixed rate of interest. It will not be accurate for an adjustable rate mortgage or an interest-only mortgage. The calculator also assumes the federal tax deduction for mortgage interest will stay unchanged for as long as you have your mortgage. There has been some talk recently of changing the deduction so that it does not subsidize very expensive houses so much. There has even been talk of eliminating mortgage tax deductions all together. However, there are no immediate plans to change the deduction and it may never change.

Calculator Legend

Mortgage Amount: Enter the entire amount of the mortgage (the original principal). If you are going to add any fees, such as closing costs, to the mortgage, remember to enter the total amount of the mortgage in the field, not simply the home purchase price. The calculator lets you specify amounts between $25,000 and 1,000,000.

15 Year Interest Rate: Enter the quoted rate of the 15-year mortgage. Usually the 15-year interest rate is lower than the 30-year rate, but not always. Your interest rate will largely depend on your credit rating, as well as federal government interest rates. You can often get a mortgage rate quote very quickly by contacting a mortgage lender.

30 Year Mortgage Rate: Enter the quoted rate of the 30-year mortgage.

Marginal Tax Rate: Enter your federal income tax marginal tax rate as a percentage. The marginal tax rate is the tax rate of the very highest tax bracket you fall into. The thresholds for the 2005 tax year stand at: Up to $7300: 10% tax rate; $7300 - $29,700: 15% tax rate; $29,700 - $71,950: 25% tax rate; $71,950 - $150,150: 28% tax rate; $150,150 - $326,450: 35% tax rate. You can also you this effective tax rate calculator to find out your rate.

Mortgages Explained

A mortgage is just a loan that uses the property being bought as collateral (something the lender can take away if payments are missed). However, unlike most other loans, mortgages are generally paid back over very long timeframes. Amortization is the method of paying back a mortgage's principal (the original loaned amount) and interest over time.

Principal and Interest

The principal is the amount owed on the mortgage. It's usually the purchase price of the home plus any fees or closing costs not paid in advance, minus any down payments.

The interest is calculated based on the principal. If you're paying 8% interest, it's 8% of the principal. So, the less your principal, the less interest you pay. You can reduce your principal by making prepayments upfront. There are other calculators that help you evaluate how to save money with prepayments. With most mortgages, the interest ends up being greater than the principal.

Note that the calculator assumes you have a fixed interest rate on your mortgage. Fixed interest rates are the most common for mortgages in the US. Adjustable rate mortgages (ARM) are popular with people who do not expect to own the property for the long haul. This calculator cannot give an accurate figure of costs for an ARM. Nonetheless, it's safe to say that a shorter mortgage term will save big on an ARM.

Mortgage Term

The term is the amount of time you have to make payments on the mortgage. The traditional mortgage in the United States has a 30-year term. However, 15-year mortgages became increasingly common toward the end of the 20th century.

The longer the mortgage term, the more interest you pay. Over the life of a 15-year mortgage, total interest may be as much as the principal or sometimes slightly less. Over the lifespan of a 30-year mortgage, total interest may be twice as large as the principal or much more. That means that a 15-year mortgage might save you an amount of money roughly equal to the purchase price of the home. Of course, the higher cost of a 30-year mortgage can be reduced greatly with a lower interest rate. Still, the 15-year mortgage is much cheaper even with the lowest interest rate possible.

Mortgage Term and Interest Rate

A 15-year mortgage will usually have a lower interest rate than a 30-year mortgage. That is why people don't just take out a 30-year mortgage and vow to pay it off in 15 years. The difference between the interest rate on a 30-year mortgage and the interest rate on a 15-year mortgage may only be a half a point. But a mere half point can add up to many thousands of dollars. The lower interest rate partially offsets the higher monthly payment a 15-year mortgage requires. (Note: the monthly payment figure quoted by the calculator takes the lower interest rate into account.)

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