15-Year Versus 30-Year Fixed Rate Mortgage Comparison

This article addresses some of the calculations you may wish to perform when choosing between a 15-year or 30-year fixed rate mortgage.

On August 7, 2025, the average 15-year and 30-year fixed rate mortgages in the United States were 5.75% [1] and 6.63% [2] per year respectively.

With an assumed home value of $600,000 and a 20% ($120,000) downpayment, a $480,000 15-year fixed rate mortgage at 5.75% per year equates to a monthly payment of $3,985.97 as calculated below (using a financial calculator with annuity payments at the end of each month).

N = 15(12) = 180 months
I = 5.75/12 = 0.47916666666 (percent) per month
PV = +$480,000
FV = 0
PMT = -$3,985.9684 per month

A 180-month amortization table would show the loan balance of zero at the end of the loan term with total principal paid of $480,000, total interest paid of $237,474.32, and total payments of $717,474.32 ($480,000 + $237,474.32 = $717,474.32).  As a check, ($3,985.9684/month)(180 months) = $717,474.31, off by one cent due to rounding error.

Here are the first three lines of the amortization table for your reference.

Month	Beginning Balance	Interest	Mortgage Payment	Ending Balance
1	$480,000.00	$2,300.00	($3,985.97)	$478,314.03
2	$478,314.03	$2,291.92	($3,985.97)	$476,619.98
3	$476,619.98	$2,283.80	($3,985.97)	$474,917.82

In the above table, the first month's interest is $2,300.00 [($480,000)(0.0047916666666) = $2,300.00].  The second month's interest is $2,291.92 [($478,314.03)(0.0047916666666) = $2,291.92].  At the end of the first month, the mortgage balance is $478,314.03 ($480,000.00 + $2,300.00 - $3,985.97 = $478,314.03).

A $480,000 30-year fixed rate mortgage at 6.63% per year equates to a monthly payment of $3,075.08 as calculated below.

N = 30(12) = 360 months
I = 6.63/12 = 0.5525 (percent) per month
PV = +$480,000
FV = 0
PMT = -$3,075.0797 per month

A 360-month amortization table would show the loan balance of zero at the end of the loan term with total principal paid of $480,000, total interest paid of $627,028.69, and total payments of $1,107,028.69.  As a check, ($3,075.0797/month)(360 months) = $1,107,028.69.

Some may decide to conclude the analysis here, noting that the person selecting the 15-year mortgage only pays $237,474 in total interest, whereas the person selecting the 30-year mortgage pays $627,029 in total interest.  They may conclude that the difference, $389,555 ($627,029 - $237,474 = $389,555), would be better off invested into a portfolio rather than paid to the bank in interest payments, heavily leaning toward choosing the 15-year mortgage.

However, the above analysis does not take compound growth into consideration.

To continue the analysis and attempt to create a more apples-to-apples comparison of the alternatives, let's assume that we are going to have cash outflows of $3,985.97 per month for the next 30 years (the higher mortgage payment of the two alternatives), regardless of which alternative we choose, going toward the mortgage payment first, and if there is any money left over each month, invested into a portfolio with an expected after-tax rate of return of 10% per year.

For the 15-year mortgage alternative, for the first 15 years, all $3,985.97 per month is used for the mortgage payment.  For years 16 through 30, since the 15-year mortgage had been paid off, the entire $3,985.97 per month can be invested into the portfolio to earn an assumed 10% per year, which is assumed to grow evenly throughout each year [i.e., 0.83333333% per month which is (10%/year)(1 year/12 months) = 0.833333333%/month].  For the 15-year mortgage alternative, the future value of the portfolio after 30 years is $1,652,066 as calculated below.

N = 15(12) = 180 months
I = 10/12 = 0.833333333 (percent) per month
PV = 0
PMT = -$3,985.97 per month
FV = +$1,652,066.37

For the 30-year mortgage alternative, since only $3,075.08 per month is needed for the mortgage payment, the difference of $3,985.97 - $3,075.08 = $910.89 per month can be invested into the portfolio to earn an assumed 10% per year, which again is assumed to occur evenly throughout each year, for the next 30 years.  For the 30-year mortgage alternative, the future value of the portfolio after 30 years is $2,059,056 as calculated below.

N = 30(12) = 360 months
I = 10/12 = 0.833333333 (percent) per month
PV = 0
PMT = -$910.89 per month
FV = +$2,059,055.84

The following table summarizes key data in the above example (higher amounts bolded).

	15-year fixed rate mortgage (5.75% per year)	30-year fixed rate mortgage (6.63% per year)
Total interest paid	$237,474	$627,029
Total principal repaid	$480,000	$480,000
Total mortgage payments	$717,474	$1,107,029
Total amount invested in portfolio	$717,475	$327,920
Total cash outflows over 30 years toward mortgage payments and investment portfolio	$1,434,949	$1,434,949
Amount in the investment portfolio at the end of 30 years	$1,652,066	$2,059,056

The total cash outflows of both alternatives over 30 years were the same, $1,434,949, which is ($3,985.9684/month)(360 months), which is also the sum of $717,474 + $717,475, or the sum of $1,107,029 + $327,920 in the above table.

You may find the result of the amount in the investment portfolio at the end of 30 years in each alternative somewhat surprising.

The person who selected the 15-year mortgage invested a total of $3,985.97(180) = $717,475 into the portfolio and had an ending value of $1,652,066.  The person who selected the 30-year mortgage invested a total of $910.89(360) = $327,920 into the portfolio and had an ending balance of $2,059,056.

In this example, based on the assumptions used, the person selecting the 30-year mortgage had an extra $406,990 ($2,059,056 - $1,652,066 = $406,990) in their investment portfolio at the end of 30 years.  And this is despite having paid $389,555 ($627,029 - $237,474 = $389,555) more in total interest and having invested $389,555 ($717,475 - $327,920 = $389,555) less into the portfolio than the person who selected the 15-year mortgage.

Why did that happen?

Because of compound growth.

At the end of the first 15 years, the person who selected the 15-year mortgage had $0 in their investment portfolio, because their entire $3,985.97 per month was going toward the mortgage payment.

At the end of the first 15 years, the person who selected the 30-year mortgage had $377,537 in their investment portfolio, because they were able to invest $910.89 per month, calculated as follows.

N = 15(12) = 180 months
I = 10/12 = 0.833333333 (percent) per month
PV = 0
PMT = -$910.89 per month
FV = +$377,536.89

The amount in the investment portfolio at the end of year 15 ($377,537), left alone to continue compounding from years 16 through 30, would have grown to $1,681,519 [($377,536.89)(1.0083333333¹⁸⁰) = $1,681,518.93].

This number, $1,681,519, combined with the $910.89 per month invested from years 16 through 30, which would have a future value of $377,536.89 by itself at the end of the 30-year period, sums to our overall value of $2,059,056 at the end of the 30-year period ($1,681,519 + 377,537 = $2,059,056) for the person selecting the 30-year mortgage.

As the above calculations show, based on the assumptions used, the vast majority (81.66%, calculated as $1,681,519/$2,059,056) of the investment portfolio balance at the end of 30 years was based on the investments made during the first 15 years, which had a much longer runway for compound growth to occur compared to the investments made during the last 15 years.

It is not simply about how much you invest, but how much time those investments have to compound and their compounding rate.

As you can imagine, a different assumption regarding the investment rate of return would lead to a different conclusion on which alternative to choose.  If the after-tax investment rate of return was 8% per year instead of 10% per year, all other assumptions the same as before, the person choosing the 15-year mortgage would have more money at the end of 30 years in their investment portfolio ($1,379,298, calculated below) than the person choosing the 30-year mortgage ($1,357,554, calculated below), which would lean toward choosing the 15-year mortgage.

N = 15(12) = 180 months
I = 8/12 = 0.666666666 (percent) per month
PV = 0
PMT = -$3,985.97 per month
FV = +$1,379,297.97

N = 30(12) = 360 months
I = 8/12 = 0.666666666 (percent) per month
PV = 0
PMT = -$910.89 per month
FV = +$1,357,553.52

The following table summarizes the values at the end of 30 years, for each alternative, given different assumptions of the expected after-tax rate of return of the investment portfolio (higher amounts bolded).

Expected after-tax rate of return of the investment portfolio	15-year fixed rate mortgage (5.75% per year)	30-year fixed rate mortgage (6.63% per year)
10% per year	$1,652,066	$2,059,056
8% per year	$1,379,298	$1,357,554
6% per year	$1,159,195	$915,003
4% per year	$980,909	$632,203

As this example illustrated, the optimal choice between a 15-year and 30-year fixed rate mortgage may involve not just the difference in total interest paid over the duration of the mortgage, but also on compound growth calculations which depend on the expected after-tax rate of return on investments for any excess cash flow not used on the mortgage payments.  Taking all of the above variables into consideration may provide more of an apples-to-apples comparison between the two alternatives.

Using the original assumption of a 10% per year after-tax rate of return on the investment portfolio, evenly distributed and compounded monthly, the additional time for compound growth to occur within the portfolio actually mathematically favored the 30-year fixed rate mortgage.

The more the expected after-tax rate of return on the investment portfolio decreases, the more it tends to favor the 15-year fixed rate mortgage.

If you are a prospective client and would like to learn more about hiring us for a financial consultation, where, among other things, we would help you run the numbers and compare your financial alternatives, please visit our Schedule Meeting page.

References:

[1]  15-Year Fixed Rate Mortgage Average in the United States.  Federal Reserve Bank of St. Louis.  Available: https://fred.stlouisfed.org/series/MORTGAGE15US.

[2]  30-Year Fixed Rate Mortgage Average in the United States.  Federal Reserve Bank of St. Louis.  Available: https://fred.stlouisfed.org/series/MORTGAGE30US.



Mike McErlane, DO, MBA, CFP^®, CFA^®, RICP^®, EA, MCEP^®

Mike McErlane is the owner and founder of Comprehensive Financial Planning for Doctors, LLC based in Frisco, Texas.

Comprehensive Financial Planning for Doctors, LLC (CFPFD) is an Investment Adviser registered with the Texas State Securities Board.  Registration of an Investment Adviser does not imply any specific level of skill or training.  CFPFD only transacts business in states or jurisdictions in which it is registered or exempt from registration.  A copy of CFPFD's current disclosure brochure is available through the Securities and Exchange Commission's Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov.

The opinions and analyses described are subject to change at any time without notice.  Any information is considered general and is not intended to provide any specific advice or recommendations.  Your use of the information is at your sole risk.  You should consult with your financial advisor, attorney, tax advisor, insurance agent, or other professional advisor before taking action on any information or implementing any strategy.