15 Year Mortgage or 30 Year Mortgage

I favor 15-year amortization over 30-year amortization schedules.

I recently paid the 48th payment on my 180 payment mortgage. In other words, I’m 4 years into a 15-year mortgage. I paid a total of $26,685.87 in interest over the last 4 years and paid $55,039.17 of principle (from $231,600 to $176,560.83). Although I paid a small amount of approximately $75.00 extra each month, I think this shows the great benefit of a 15-year mortgage.

If I had a 30-year mortgage, the required monthly payment would have been lower, but I would only have paid $21,919.29 of principle (from $231,600 to $209,680.71) and $33,175.35 would have gone to interest. This assumes the 30-year mortgage would have a 0.5% higher interest rate, which is fairly typical.

Some might argue that had I taken the lower payment (i.e 30 Year) and invested the difference, I would have a greater net gain than the 15 year. This might be true since the market has done fairly well between August 2015, and August 2019. Assuming the difference in payment of $554.80 over 48 payments, that immediately nets $26,630.40.  Further, that money was invested systematically in the market and the S&P has gone from approximately 2000 to 2900 or a 45% total gain. I presume that a more exacting calculation could be performed but the gain on your monthly investments would be much smaller since you only started with $554.80. Ultimately, this ignores the reality that most people simply lack the disciple to do such investing.

The first few years in a 30-year mortgage are painful since most of your payment will go to interest. The first payment in a 15-year mortgage amortization schedule is much more favorable. There are several google sheets amortization schedules that you can manipulate to figure out what works best for you.