15 vs 20 Year Mortgage or Invest The Difference Calculator
'/%3E%3Ccircle cx='48' cy='39' r='19' fill='%23f2c9a5'/%3E%3Cpath d='M27 35c3-16 39-17 42 2-8-8-27-9-42-2z' fill='%23374151'/%3E%3Cpath d='M21 86c5-24 49-28 56 0z' fill='%232563eb'/%3E%3Ccircle cx='41' cy='41' r='2' fill='%23111827'/%3E%3Ccircle cx='55' cy='41' r='2' fill='%23111827'/%3E%3Cpath d='M42 52c4 3 9 3 13 0' stroke='%2392400e' stroke-width='3' fill='none' stroke-linecap='round'/%3E%3C/svg%3E)
Reviewed by Calculator Editorial Team
Deciding between a 15-year and 20-year mortgage can significantly impact your financial future. Our calculator helps you compare the two options and determine whether investing the difference between the two mortgage types could be a better financial decision.
Introduction
When purchasing a home, one of the most important financial decisions you'll make is choosing between a 15-year and 20-year mortgage. Both options have their advantages and disadvantages, and the right choice depends on your financial situation, risk tolerance, and long-term goals.
A 15-year mortgage typically offers lower monthly payments but requires you to pay off the loan faster. This can be beneficial if you expect to sell or refinance your home before the 15 years are up. However, the higher interest rate on a 15-year mortgage means you'll pay more in total interest over the life of the loan.
A 20-year mortgage, on the other hand, has lower interest rates, which means you'll pay less in total interest over the life of the loan. However, the monthly payments are higher, and you'll be paying for the loan longer. This can be a good option if you plan to stay in your home for the long term and want to minimize the total interest paid.
Our calculator helps you compare these two options by calculating the total interest paid, total amount paid, and the difference between the two mortgage types. You can then decide whether investing the difference between the two mortgage types could be a better financial decision.
How the Calculator Works
The calculator uses the following formulas to compare 15-year and 20-year mortgages:
Monthly Payment Formula
For both mortgage terms, the monthly payment is calculated using the standard mortgage payment formula:
M = P [ i(1 + i)n ] / [ (1 + i)n - 1 ]
Where:
- M = monthly payment
- P = principal loan amount
- i = monthly interest rate (annual rate divided by 12)
- n = number of payments (15 years × 12 = 180 months or 20 years × 12 = 240 months)
Total Interest Paid
The total interest paid is calculated by multiplying the monthly payment by the number of payments and then subtracting the principal loan amount:
Total Interest = (M × n) - P
Total Amount Paid
The total amount paid is simply the sum of the principal loan amount and the total interest paid:
Total Amount Paid = P + Total Interest
Difference Between Mortgage Types
The difference between the two mortgage types is calculated by subtracting the total amount paid for the 15-year mortgage from the total amount paid for the 20-year mortgage:
Difference = Total Amount Paid (20-year) - Total Amount Paid (15-year)
The calculator then provides a comparison of the two mortgage types, including the monthly payments, total interest paid, total amount paid, and the difference between the two mortgage types. This information can help you make an informed decision about which mortgage term is right for you.
Example Calculation
Let's look at an example to illustrate how the calculator works. Suppose you're considering a $200,000 mortgage with the following interest rates:
- 15-year mortgage: 4.5% annual interest rate
- 20-year mortgage: 3.5% annual interest rate
15-Year Mortgage Calculation
Using the monthly payment formula:
Monthly interest rate = 4.5% ÷ 12 = 0.375% or 0.00375
Number of payments = 15 × 12 = 180
Monthly payment = $200,000 [ 0.00375(1 + 0.00375)180 ] / [ (1 + 0.00375)180 - 1 ] ≈ $1,622.50
Total interest paid = ($1,622.50 × 180) - $200,000 ≈ $110,170
Total amount paid = $200,000 + $110,170 = $310,170
20-Year Mortgage Calculation
Using the monthly payment formula:
Monthly interest rate = 3.5% ÷ 12 ≈ 0.2917% or 0.002917
Number of payments = 20 × 12 = 240
Monthly payment = $200,000 [ 0.002917(1 + 0.002917)240 ] / [ (1 + 0.002917)240 - 1 ] ≈ $1,130.30
Total interest paid = ($1,130.30 × 240) - $200,000 ≈ $63,672
Total amount paid = $200,000 + $63,672 = $263,672
Comparison
| Metric | 15-Year Mortgage | 20-Year Mortgage |
|---|---|---|
| Monthly Payment | $1,622.50 | $1,130.30 |
| Total Interest Paid | $110,170 | $63,672 |
| Total Amount Paid | $310,170 | $263,672 |
| Difference | $46,498 | |
In this example, the 20-year mortgage is cheaper overall, with lower total interest paid and a lower total amount paid. The difference between the two mortgage types is $46,498, which could be invested elsewhere to potentially earn a higher return.
Frequently Asked Questions
- Which mortgage term is better, 15-year or 20-year?
- There is no one-size-fits-all answer to this question. A 15-year mortgage may be better if you expect to sell or refinance your home before the 15 years are up, or if you want to pay off your mortgage faster. A 20-year mortgage may be better if you plan to stay in your home for the long term and want to minimize the total interest paid.
- Can I switch from a 15-year to a 20-year mortgage?
- Yes, you can refinance your mortgage from a 15-year to a 20-year term, but there may be fees and penalties associated with refinancing. It's important to compare the costs and benefits of refinancing before making a decision.
- What factors should I consider when choosing between a 15-year and 20-year mortgage?
- When choosing between a 15-year and 20-year mortgage, consider your financial situation, risk tolerance, and long-term goals. Also, consider the current interest rates and how they may change in the future. Our calculator can help you compare the two options and make an informed decision.