The 15-year mortgage crowd says: “Pay less interest! Build equity faster! Be debt-free sooner!”
The 30-year mortgage crowd says: “Keep flexibility! Invest the difference! Don’t be house-poor!”
Both are right. Both are wrong. Here’s what neither side tells you.
The misconception on both sides
The 15-year advocates focus only on interest saved. The 30-year advocates focus only on investment returns. Neither is looking at the complete picture—and the complete picture is what determines whether you build wealth or just feel like you’re building wealth.
The true cost of a 15-year mortgage
1. Cash flow inflexibility
On a $400,000 loan at 6.5%:
- 30-year payment: $2,528/month
- 15-year payment: $3,484/month
That’s $956/month you MUST pay—every month, for 15 years, regardless of:
- Job loss
- Medical emergency
- Market crash
- Business opportunity
- Family crisis
The 15-year mortgage doesn’t care about your circumstances. Miss payments, and you lose your home just as fast as with a 30-year.
2. Opportunity cost is real but uncertain
That $956 monthly difference invested at 8% for 15 years = ~$330,000.
But here’s what 15-year advocates miss: you don’t get 8% every year. Some years you get -20%. If that -20% year happens when you also lose your job, your “smart” investment strategy meets reality.
3. Forced savings isn’t always bad
Counter-argument: most people won’t actually invest the difference. They’ll spend it. The 15-year mortgage forces discipline that voluntary investing doesn’t.
If you know yourself, and you know you’d spend that $956 on lifestyle inflation, the 15-year might build more wealth despite the math.
The true cost of a 30-year mortgage
1. Interest paid is staggering
$400,000 at 6.5% over 30 years = $510,000 in total interest. $400,000 at 6% over 15 years = $207,000 in total interest.
That’s $303,000 more in interest. Even if you invest wisely, you need significant returns to overcome that gap.
2. The “invest the difference” myth
Studies show most people don’t invest the difference. They:
- Upgrade their car
- Take nicer vacations
- Eat out more often
- Buy more house than they need
The 30-year mortgage enables lifestyle inflation while feeling financially responsible.
3. 30 years of debt is 30 years of risk
A lot can happen in 30 years:
- Property values can crash (and stay down for a decade)
- Neighborhoods can decline
- Your life circumstances can change dramatically
- Interest deductions can disappear (tax law changes)
You’re locked into a 30-year bet on a single asset in a single location.
The hidden third option nobody discusses
Take the 30-year mortgage. Pay it like a 15-year.
Here’s what this gives you:
- Lower required payment: If crisis hits, drop to minimum payment
- Flexibility: Extra payments are optional, not mandatory
- Same payoff timeline: Making 15-year-sized payments on a 30-year pays it off in roughly 15 years
- Similar interest savings: Most of the interest savings come from faster principal reduction, not the rate difference
The catch: This requires discipline. You have to actually make those extra payments, not spend the “savings.”
When the 15-year makes sense
Choose 15-year if:
- Your payment is under 25% of take-home pay
- You have 6+ months emergency fund
- You have zero high-interest debt
- Your retirement savings are on track (15%+ of income)
- You know you lack investment discipline
When the 30-year makes sense
Choose 30-year if:
- The 15-year payment exceeds 30% of take-home pay
- You have irregular income (self-employed, commission-based)
- You’re confident you’ll invest the difference (and actually do it)
- You might move within 10 years
- You want to maximize liquidity for business opportunities
The decision framework
Ask yourself honestly:
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What happens if I lose my income for 6 months? If the 15-year payment would devastate you, take the 30-year.
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Will I actually invest the difference? Be honest. Look at your track record. If you won’t invest it, the 15-year builds more wealth.
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What’s my risk tolerance? The 15-year is lower risk, lower potential reward. The 30-year (invested properly) is higher risk, higher potential reward.
-
How long will I stay? If you’re moving in 7 years, the difference matters less than you think.
The bottom line
The 15-year vs 30-year debate is really a debate about who you are:
- Are you disciplined enough to invest the difference?
- Are you risk-tolerant enough to handle market volatility?
- Are you secure enough in your income to commit to higher payments?
The right answer isn’t in a spreadsheet. It’s in your honest assessment of your own behavior.
Choose based on who you actually are, not who you wish you were.