You might be able to save hundreds of thousands of dollars with a 15-year mortgage loan
When buying a home or refinancing one, you will have many choices and should shop around to minimize fees. And a 15-year loan might be much better for you than the customary 30-year loan.
If you are looking to buy a home or refinance one, you should begin by setting aside any assumptions and commit instead to shopping around. You can save on upfront fees that way. And even though the U.S. mortgage-loan industry is geared toward 30-year loans, you might be better off with a 15-year loan for several reasons.
The following comparison of 15-year and 30-year fixed-rate mortgage loans is based on the current national average interest rates posted by Freddie Mac. This company and Fannie Mae together have purchased and securitized about 70% of current U.S. mortgages, according to AmeriSave's estimate.
If you go to a bank for a mortgage loan, you will get the lowest interest rate with a "conforming" loan - one that is underwritten under guidelines provided by Freddie Mac or Fannie Mae, which will enable the bank to sell the new loan immediately to one of those entities. Banks want to sell fixed-rate loans to get the interest-rate risk off their books and avoid the possibility of paying a higher interest rate on deposits than they receive on the loan if high inflation causes a spike in short-term rates further down the line.
For 2026, Freddie and Fannie have a conforming limit of $832,750 for single-family home loans, though the limit can increase as much as 50% - to $1,249,125 - in certain high-cost areas. The Federal Housing Finance Agency sets these limits every year.
Another requirement for Freddie and Fannie through their loan programs with the lowest interest rates is that a home buyer make a 20% down payment, or if you are refinancing, the loan-to-value ratio be 80% or less.
So this discussion doesn't cover special lending programs, such as those made under the Federal Housing Administration's rules that allow much lower down payments. Keep in mind that FHA loans include a fee of 1.75% of the loan amount, plus a mortgage-insurance premium that will be added to your monthly payment.
Before we proceed, remember to shop around. Don't assume you need a mortgage broker to arrange your loan. A mortgage broker may specialize in helping people with low credit scores, those unable to prove their income or those who cannot supply a 20% down payment for a loan. The broker can provide many choices, for a fee. But if you qualify for a conforming loan, you may save on fees by going to a bank. And then shop around among banks for a competitive interest rate and the lowest origination fee, if any.
A warning before we proceed
When you take out your new loan, your lender will prefer for you to have the home's annual property taxes and insurance escrowed, which means those costs will be added to your monthly payments, and the lender or loan servicer will pay your taxes and insurance premiums for you. You might also choose not to be escrowed, but there will likely be a fee for that privilege.
The loan comparison that follows excludes insurance and taxes. You had better have good estimates for how much these items will cost after you buy the home. Lenders are notorious for using the home seller's property-tax records as a basis for that cost estimate. But in many areas of the U.S., the property tax rate will be stepped up and based on how much you pay for the home. It might be a tremendous increase. So you must visit your county's property appraiser and/or tax collector to get a firm idea of how much you will be paying as a new homeowner. And shop around for homeowner-insurance policies (and a flood policy if you need one) in advance. Otherwise, after one year of the loan servicer collecting too little to cover taxes and insurance, your annual escrow analysis will include a double surprise - an increase to cover the first year's shortfall and another increase to cover the following year. This payment shock can be traumatic.
Comparing 15-year and 30-year mortgage loans
The following comparison is for fixed-rate amortizing loans. Through amortization, the monthly loan rate is fixed for the term of the loan. This means the weighting of each monthly payment to principal and interest changes over time. Early payments are mostly interest, while payments closer to the end of the loan term means payments will be mostly principal.
Freddie Mac posts weekly national average mortgage loan rates. As of June 18, the average interest rate for a 30-year fixed loan was 6.47%. For a 15-year loan, it was 5.81%. For those of you with memories of 3% mortgage loans, those rates may appear outrageously high. And many people are staying put with mortgage loans well below 4%.
Then again, the Federal Reserve Bank of St. Louis's chart of 30-year rates since 1971 shows that the current rate scene isn't extreme:
Mortgage loan rates in the U.S. have risen sharply since 2020, but they are still not at extreme levels, according to data going back to 1971.
Freddie Mac reported that it purchased $7.5 billion in 15-year fixed-rate loans during the first quarter. That volume was up 70% from the first quarter of 2025. Then again, 15-year loan purchases made up only 7% of Freddie's total during the first quarter, up from 6% during the year-earlier period.
So 15-year loans have become more popular, but still make up a low percentage overall.
For our loan-comparison scenario, you are buying a $500,000 home and putting down 20%, or $100,000, so the loan amount is $400,000.
For a 15-year loan at a rate of 5.81%, the monthly principal and interest payment (P&I) is $3,334.51
For a 30-year loan at a rate of 6.47%, the monthly P&I is $2,520.39
For the extra $814.12 a month, you are free of debt 15 years earlier, saving $307,125 in interest.
You can make your own P&I comparisons for different loan amounts, terms and interest rates, and look at the full amortization schedules using NerdWallet's Mortgage Calculator. This calculator doesn't require you to enter any personal information.
That addition to your monthly payment might seem insurmountable at first. But the information can encourage you to think about how much you want to spend on a home or other ways to cover the extra expense - the financial reward if you can go with the 15-year loan is tremendous. Can you free up some cash flow by putting off your next car purchase? There might be other expenses you can cut, and a combination of expense reduction and a lower-cost home could make the 15-year loan possible. And your income may rise over those years.
Addressing counterarguments
Keep in mind when discussing your loan term choice with a lender that it may be in the lender's interest to steer you toward a 30-year loan.
Let's address some arguments against taking the 15-year loan, assuming you, as the borrower, can afford it.
We're planning to move in five years anyway.
These years tend to pass by quickly. You might not be ready to make a move in five years. Either way, you will be in a better financial position five years from now if you take the 15-year loan. That will make it easier to buy your next home.
If we look at how the weighting of principal and interest within the amortizing loan payments changes over time, we see quite an advantage for the 15-year loan, even after five years.
Monthly payments for the 30-year loan are fixed at $2,520.39. The first payment includes of $363.72 for principal and $2,156.67 for interest. Five years later, the 60th monthly payment is $499.52 principal and $2,020.87 interest. The remaining loan balance after five years is $374,314. Over the five years, you have paid $125,537 in interest and have paid down only $25,686 of the principal.
Monthly payments for the 15-year loan are fixed at $3,334.51. The first payment is $1,397.84 principal and $1,936.67 interest. The 60th payment is $1,858.74 principal and $1,475.77 interest. The remaining loan balance after five years is $302,947. During the five years with the 15-year loan, you have paid $103,018 in interest and have paid down $97,053 of the principal.
If we include the $100,000 down payment, then with the 30-year loan, we can say we have "built up equity" of $125,686 after five years; with the 15-year loan, we would have built up equity of $197,053 over five years.
If we take the 30-year loan and make one extra payment a year, and apply that to the principal, we will shave eight years off the life of the loan.
That is true, but it requires discipline. You might find during the early years that emergencies keep you from making the extra annual principal payments. And you will still pay a much higher interest rate every day with the 30-year loan.
If we take the 30-year loan and invest the freed-up money in a stock-index fund, we will be better off because long-term average annual returns in the stock market have been higher than these loan rates.
You might find it difficult to invest that extra $814 per month under this loan-comparison scenario. You might buy (or lease) a nice car instead. And stock-market returns aren't guaranteed. The lower interest rate on the 15-year loan is fixed and the faster equity buildup is a feature of the 15-year loan, as is saving $307,125 in interest when comparing the 15-year loan's full term with that of the 30-year loan.
And maybe being free of your largest debt 15 years earlier can be considered priceless.
What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.
-Philip van Doorn
MW Why a 30-year mortgage loan could be your biggest money mistake
By Philip van Doorn
You might be able to save hundreds of thousands of dollars with a 15-year mortgage loan
When buying a home or refinancing one, you will have many choices and should shop around to minimize fees. And a 15-year loan might be much better for you than the customary 30-year loan.
If you are looking to buy a home or refinance one, you should begin by setting aside any assumptions and commit instead to shopping around. You can save on upfront fees that way. And even though the U.S. mortgage-loan industry is geared toward 30-year loans, you might be better off with a 15-year loan for several reasons.
The following comparison of 15-year and 30-year fixed-rate mortgage loans is based on the current national average interest rates posted by Freddie Mac. This company and Fannie Mae together have purchased and securitized about 70% of current U.S. mortgages, according to AmeriSave's estimate.
If you go to a bank for a mortgage loan, you will get the lowest interest rate with a "conforming" loan - one that is underwritten under guidelines provided by Freddie Mac or Fannie Mae, which will enable the bank to sell the new loan immediately to one of those entities. Banks want to sell fixed-rate loans to get the interest-rate risk off their books and avoid the possibility of paying a higher interest rate on deposits than they receive on the loan if high inflation causes a spike in short-term rates further down the line.
For 2026, Freddie and Fannie have a conforming limit of $832,750 for single-family home loans, though the limit can increase as much as 50% - to $1,249,125 - in certain high-cost areas. The Federal Housing Finance Agency sets these limits every year.
Another requirement for Freddie and Fannie through their loan programs with the lowest interest rates is that a home buyer make a 20% down payment, or if you are refinancing, the loan-to-value ratio be 80% or less.
So this discussion doesn't cover special lending programs, such as those made under the Federal Housing Administration's rules that allow much lower down payments. Keep in mind that FHA loans include a fee of 1.75% of the loan amount, plus a mortgage-insurance premium that will be added to your monthly payment.
Before we proceed, remember to shop around. Don't assume you need a mortgage broker to arrange your loan. A mortgage broker may specialize in helping people with low credit scores, those unable to prove their income or those who cannot supply a 20% down payment for a loan. The broker can provide many choices, for a fee. But if you qualify for a conforming loan, you may save on fees by going to a bank. And then shop around among banks for a competitive interest rate and the lowest origination fee, if any.
A warning before we proceed
When you take out your new loan, your lender will prefer for you to have the home's annual property taxes and insurance escrowed, which means those costs will be added to your monthly payments, and the lender or loan servicer will pay your taxes and insurance premiums for you. You might also choose not to be escrowed, but there will likely be a fee for that privilege.
The loan comparison that follows excludes insurance and taxes. You had better have good estimates for how much these items will cost after you buy the home. Lenders are notorious for using the home seller's property-tax records as a basis for that cost estimate. But in many areas of the U.S., the property tax rate will be stepped up and based on how much you pay for the home. It might be a tremendous increase. So you must visit your county's property appraiser and/or tax collector to get a firm idea of how much you will be paying as a new homeowner. And shop around for homeowner-insurance policies (and a flood policy if you need one) in advance. Otherwise, after one year of the loan servicer collecting too little to cover taxes and insurance, your annual escrow analysis will include a double surprise - an increase to cover the first year's shortfall and another increase to cover the following year. This payment shock can be traumatic.
Comparing 15-year and 30-year mortgage loans
The following comparison is for fixed-rate amortizing loans. Through amortization, the monthly loan rate is fixed for the term of the loan. This means the weighting of each monthly payment to principal and interest changes over time. Early payments are mostly interest, while payments closer to the end of the loan term means payments will be mostly principal.
Freddie Mac posts weekly national average mortgage loan rates. As of June 18, the average interest rate for a 30-year fixed loan was 6.47%. For a 15-year loan, it was 5.81%. For those of you with memories of 3% mortgage loans, those rates may appear outrageously high. And many people are staying put with mortgage loans well below 4%.
Then again, the Federal Reserve Bank of St. Louis's chart of 30-year rates since 1971 shows that the current rate scene isn't extreme:
Mortgage loan rates in the U.S. have risen sharply since 2020, but they are still not at extreme levels, according to data going back to 1971.
Freddie Mac reported that it purchased $7.5 billion in 15-year fixed-rate loans during the first quarter. That volume was up 70% from the first quarter of 2025. Then again, 15-year loan purchases made up only 7% of Freddie's total during the first quarter, up from 6% during the year-earlier period.
So 15-year loans have become more popular, but still make up a low percentage overall.
For our loan-comparison scenario, you are buying a $500,000 home and putting down 20%, or $100,000, so the loan amount is $400,000.
For a 15-year loan at a rate of 5.81%, the monthly principal and interest payment (P&I) is $3,334.51
For a 30-year loan at a rate of 6.47%, the monthly P&I is $2,520.39
For the extra $814.12 a month, you are free of debt 15 years earlier, saving $307,125 in interest.
You can make your own P&I comparisons for different loan amounts, terms and interest rates, and look at the full amortization schedules using NerdWallet's Mortgage Calculator. This calculator doesn't require you to enter any personal information.
That addition to your monthly payment might seem insurmountable at first. But the information can encourage you to think about how much you want to spend on a home or other ways to cover the extra expense - the financial reward if you can go with the 15-year loan is tremendous. Can you free up some cash flow by putting off your next car purchase? There might be other expenses you can cut, and a combination of expense reduction and a lower-cost home could make the 15-year loan possible. And your income may rise over those years.
Addressing counterarguments
Keep in mind when discussing your loan term choice with a lender that it may be in the lender's interest to steer you toward a 30-year loan.
Let's address some arguments against taking the 15-year loan, assuming you, as the borrower, can afford it.
We're planning to move in five years anyway.
These years tend to pass by quickly. You might not be ready to make a move in five years. Either way, you will be in a better financial position five years from now if you take the 15-year loan. That will make it easier to buy your next home.
If we look at how the weighting of principal and interest within the amortizing loan payments changes over time, we see quite an advantage for the 15-year loan, even after five years.
Monthly payments for the 30-year loan are fixed at $2,520.39. The first payment includes of $363.72 for principal and $2,156.67 for interest. Five years later, the 60th monthly payment is $499.52 principal and $2,020.87 interest. The remaining loan balance after five years is $374,314. Over the five years, you have paid $125,537 in interest and have paid down only $25,686 of the principal.
Monthly payments for the 15-year loan are fixed at $3,334.51. The first payment is $1,397.84 principal and $1,936.67 interest. The 60th payment is $1,858.74 principal and $1,475.77 interest. The remaining loan balance after five years is $302,947. During the five years with the 15-year loan, you have paid $103,018 in interest and have paid down $97,053 of the principal.
If we include the $100,000 down payment, then with the 30-year loan, we can say we have "built up equity" of $125,686 after five years; with the 15-year loan, we would have built up equity of $197,053 over five years.
If we take the 30-year loan and make one extra payment a year, and apply that to the principal, we will shave eight years off the life of the loan.
That is true, but it requires discipline. You might find during the early years that emergencies keep you from making the extra annual principal payments. And you will still pay a much higher interest rate every day with the 30-year loan.
If we take the 30-year loan and invest the freed-up money in a stock-index fund, we will be better off because long-term average annual returns in the stock market have been higher than these loan rates.
You might find it difficult to invest that extra $814 per month under this loan-comparison scenario. You might buy (or lease) a nice car instead. And stock-market returns aren't guaranteed. The lower interest rate on the 15-year loan is fixed and the faster equity buildup is a feature of the 15-year loan, as is saving $307,125 in interest when comparing the 15-year loan's full term with that of the 30-year loan.
And maybe being free of your largest debt 15 years earlier can be considered priceless.
What personal-finance issues would you like to see covered in MarketWatch? We would like to hear from readers about their financial decisions and money-related questions. You can write to us at readerstories@marketwatch.com. A reporter may be in touch to learn more. MarketWatch will not attribute your answers to you by name without your permission.
-Philip van Doorn
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June 24, 2026 11:38 ET (15:38 GMT)
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