A shorter term means a higher payment and usually less interest. See the trade-off with the rates you were quoted.
How it works
Total interest = monthly payment × months − loan amount
Each term’s principal and interest payment uses the standard amortization formula at its own rate. Shorter terms usually price at lower rates, so enter each quote if you have it.
Keep in mind
- The payment shown is principal and interest; taxes, insurance and any mortgage insurance come on top.
- You can get part of the saving without a shorter term by paying extra principal; the mortgage payment calculator shows the effect.
Questions
Is a 15-year mortgage worth it?
If the higher payment fits comfortably, it saves a great deal of interest and builds equity fast. If it would leave you short on savings, a 30-year loan with extra payments when you can is more flexible. See also: Bridge loan equity calculator.
Why is the rate lower on a 15-year loan?
The lender’s money is out for less time, so the risk is lower. The difference varies; ask for quotes on each term.
Can I switch terms later?
Yes, by refinancing, which has costs. The refinance break-even calculator helps judge whether it’s worth it.
