I just ran my numbers, trying to figure out if what you’re saying is right.

My current total interest on my 30 year at 5% is 164k. I’ve already paid 17k over the last two years, so that leaves about 147k interest left to pay.

My increase out of pocket per month for a 15 year loan is $300.

Using this (http://www.patrickschneider.com/compound_interest_calculator.php) calculator, plugging in $0 starting, $300 per month, and a more ‘realistic’ 5% APR (although you’ll have to educate me as to where I could get that these days), I end up with $250k after 30 years, but I’ve paid $164k in interest. Net 86k.

Now, let’s say I refinance and pay off my loan in 15 years @ 3.7 APR. This reduces my remaining interest from 147k to 50k. (Total interest over life of loan = 67k.)

Then, for the next 15 years, I take the $900 I would have paid as mortgage and invest @ 5%. This results in 240k after 15 years. 240k – 67k = Net 173k.

A fifty percent better net in half the time results in a much better return.

If you can afford the 15 year term and are early into your mortgage, you will save tens of thousands in interest.

Also, with my modest mortgage (originally $173k 2 years ago):

I would have to pay a whopping 75% more on top of my current monthly payment to equal the same interest savings by refinancing down 1.3 points to a 15 year loan with a 25% increase in my month payment.

Going with the 15 year now will reduce my remaining interest from 118k to 50k, a 70k savings “return” on the 54k extra payments over 15 years. That return is bsically 3.5% APR based on a monthly contribution of $300 (the increase in my payment)

Not to mention I will own my house outright in 15 years instead of 28.

Another approach is to compare the net investment. The net value is amount borrowed minus principal outstanding. The net cost is the total amount paid to date. The net investment is the net value minus the net cost. Calculate net investment for 15 and 30 yr, and then subtract the two for net benefit of 15 yr vs 30.

To be consistent with the protect yourself against unforeseen circumstances, the 15 year calculation can be done with the 30 year rate.

In any case, the result is that the shorter term at the same interest rate costs less, and a shorter term at a lower rate reduces cost more. Since the goal is to reduce cost, I would select the shortest affordable term. To fully evaluate the ability to make the higher payments, one could have a period of time where they make the higher payment in their current situation.

Brandon, I hope you didn’t lose your shorts since you posted this comment.

The difference between a 15 year and 30 year on 300K loan (assuming 20% down) isn’t 20k… check your math. Its 150K (278K in interest versus 124K in interest)

I don’t understand how letting the bank compound 6% against you for an extra 15 years raising an addition 150,000 in interest isn’t that big of a deal. The average American probably isn’t savvy enough at investing to beat 6% a year on their money, so they are better off paying down their mortgage instead.

A 15 year mortgage always pays off in 15 years no matter what(given you make the payments.

A 30 year paid like a 15 rarely pays in 15, once humans are factored in the equation.