15-year vs 30-year mortgage: which actually saves you more?

The straight-up comparison

Take a $300,000 loan and current rate spread of about 0.6% (15-year ~5.9%, 30-year ~6.5%):

Switching to the 15-year saves $229,543 in lifetime interest but costs $621 more per month.

The opportunity-cost view

The naive comparison above ignores what you do with the $621/month difference. If you reliably invest it at a 7% annualized return for 15 years, that stream is worth roughly $197,000 at year 15 — closing most of the interest-savings gap.

A few caveats:

• 7% is not guaranteed; markets are volatile.
• Many people don’t invest the difference — they spend it.
• Mortgage interest savings are guaranteed and risk-free.

The honest answer: if you are a disciplined investor with a long horizon, a 30-year + invest-the-difference can beat a 15-year. If you would otherwise spend it, a 15-year is a better forced-savings vehicle.

When the 15-year is clearly better

• You are within ~15 years of your target retirement age.
• You want a paid-off home for cash-flow flexibility in retirement.
• You don’t yet have an employer 401(k) match — that’s almost always a higher-return use of cash flow than mortgage prepayment.
• You will get materially better rate (typical spread 0.5%–0.8%).

When the 30-year is clearly better

• You’re early career and need flexibility.
• You have a high-rate-of-return investment target (employer match, S&P 500 within IRA, business equity).
• You want optionality to prepay voluntarily — a 30-year + 15-year-equivalent prepayment plan gives the same payoff date but lets you stop in any tight month.

Run both scenarios in our calculator and use the prepayment comparator to model the third option.