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15 Year Mortgages Are 30 Year Mortgage With Extra Payments!

Posted By Jim On 01/24/2008 @ 1:12 pm In Personal Finance | 38 Comments

A reader once asked: What’s the difference between getting a 15 year fixed mortgage and getting a 30 year fixed mortgage and then paying extra onto the principal?

My answer is: nothing. Let’s do the math…

The two loans are:

  • 15 year fixed loan for $300,000 at 5.0%, vs,
  • 30 year fixed loan for $300,000 at 5.0%.

Here’s how the stats compare (based on Dinkytown calculators):

Loan Terms Monthly Payment Total Interest Total Paid
15 Year Fixed $2,372.38 $127,028.69 $427,028.69
30 Year Fixed $1,610.46 $279,769.69 $579,769.69
Difference $761.92 -$152,741.00 -$152,741.00

The above table should come as no surprise. The 30 year fixed mortgage has lower payments because it’s over 30 years but comes with the additional cost because of interest. Now, what if you were to take the difference in the monthly payment, $761.92, and apply it to each additional payment on the 30 year fixed mortgage? You would get the following:

Loan Terms Monthly Payment Total Interest Total Paid
15 Year Fixed $2,372.38 $127,028.69 $427,028.69
30 Year Fixed+ $2,372.38 $127,028.69 $427,028.69
Difference $0 $0 $0

That’s right, there’s no difference whatsoever (this makes sense though!).

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