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Comparing Payback Periods On 15-Year, 20-Year and 30-Year Mortgages

2008
09.12

After 15 years, a 30-year fixed rate mortgage at 6.000 percent still has 73.19 percent of its principal balance remaining

On all principal + interest home loans, the first few years of payments include a lot more money going to interest than to principal.

This is because mortgage repayment schedules are front-loaded with interest, meaning large-volume principal reduction won’t occur until late in the mortgage’s lifecycle.

Comparing products at a 6% mortgage rate, did you know that after 15 years:

  • A 15-year mortgage will be paid in full
  • A 20-year mortgage will have 41.21% of its loan balance remaining
  • A 30-year mortgage will have 73.19% of its loan balance remaining

Of course, this doesn’t mean that 15-year mortgages are better than their 20-year or 30-year brethren. It just means that 15-year mortgages pay off faster.

Yet, there are reasons for homeowners to avoid 15-year mortgages.

For example, versus 20-year or 30-year products, 15-year mortgages require the highest monthly payment because the payback period is compressed to a shorter time frame. In addition, mortgage interest tax deductions to which most homeowners are entitled are reduced on a 15-year product.

So, just because the 15-year pays off quickly doesn’t mean that it’s best for everyone.

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