15-year vs 30-year mortgage when you invest the difference: the return that decides it

By DecisionSheet · Updated October 8, 2026 · 2026 tax figures

The case for the 30-year mortgage is never that it costs less. It is that the lower payment leaves money to invest, and that the investment can outgrow the interest saved by the 15-year. That is a claim about a rate of return, and it can be checked. This page uses the mortgage refinance break-even calculator, which compares any two loans on the same balance with every cash difference between them invested, to find the return at which the two choices come out even.

The example

• The loan. $400,000, fixed rate.
• 30-year. 6.90%, $2,634.40 a month. Interest over the term: $548,384.
• 15-year. 6.20%, $3,418.80 a month. Interest over the term: $215,384.
• The difference. $784.40 a month, $9,413 a year, which the 30-year borrower invests. After year 15 the 15-year borrower has no payment and invests the whole $2,634.40 the other borrower is still paying, until year 30.

Both rates are assumptions. The 15-year is 0.70% lower, in line with the Freddie Mac survey, which as of September 24, 2026 put the 30-year average at 7.03% and the 15-year at 6.26% (Freddie Mac PMMS). The gap matters: a 15-year loan is not just a 30-year paid faster, it is cheaper money.

In the calculator the 30-year is entered as the "current loan" with all 360 payments ahead of it, the 15-year as the "new loan", and closing costs are zero. With no costs to earn back, the comparison is purely the two payment streams and the balances they leave.

Who is ahead, and when

"Ahead" is the 15-year borrower's lead: what each has paid, what each still owes, and what each has invested, if the home were sold at that point.

With no return on cash the lead is simply the interest difference, $333,000 by the end. At 4%, a savings-account return, the 15-year is ahead at every point and finishes +$298,907 up. At 8% it is still ahead throughout, but by +$49,341 at the end: the invested difference has done most of the work of closing the gap. At 10% the 30-year wins over the full term by $255,894, after trailing for the first 12.6 years. Open the 8% scenario · the 10% scenario.

The tie return

Over 30 years the two paths tie when the invested cash earns 8.41% a year. That is the number to hold against any expectation about markets. It is above the 15-year's own rate because the 30-year borrower is also paying 6.90% on a larger balance for longer, so the investment has to beat the 15-year's rate and make up the rate gap.

The tie moves with how long the home is kept, because the 15-year's advantage is front-loaded in one sense, its faster principal paydown, and back-loaded in another, the 15 years of investing the whole payment:

• Sold after 7 years: tie at 13.58%. Open.
• Sold after 15 years: tie at 9.30%. Open.
• Held 30 years: tie at 8.41%. Open.

A shorter stay raises the bar for the 30-year, since the invested difference has had less time to compound while the 15-year has already repaid much more principal.

What the model leaves out, and which way it leans

The comparison assumes the 30-year borrower actually invests the $784.40 every month for 30 years, in something earning a steady return, and never spends it. A borrower who would not do that is comparing a 15-year mortgage with a 30-year and more consumption, which is a different question. In the other direction, the 15-year's higher payment is a commitment; a 30-year borrower can stop investing in a bad year, and a 15-year borrower cannot stop paying. The model prices neither the discipline nor the flexibility.

It is pre-tax. Mortgage interest is deductible only for those who itemize (IRS Publication 936), and investment returns are taxed; both would move the tie return, in opposite directions, by amounts that depend on the borrower. And the return is a constant: a 8% assumption that arrives as a sequence of good and bad years can leave the 30-year borrower behind at the moment of sale even when its average is right. Pay off a 3% mortgage or a 7% mortgage early? covers the same trade-off for a prepayment on a loan already taken, where the break-even is the loan's own rate.

Assumptions and limits

• Both loans are fixed-rate on the same $400,000, with interest charged monthly at one-twelfth of the annual rate. Closing costs are set to zero on both; a purchase has them, but they are the same for either term.
• The 6.90% and 6.20% rates are assumptions, with the 15-year below the 30-year as in the Freddie Mac survey.
• The return on cash is one constant annual rate applied to every cash difference between the two paths: the $784.40 the 30-year borrower invests for 15 years and the $2,634.40 the 15-year borrower invests for the 15 after. It is an input, not a forecast.
• The lead at a point is a sale-day comparison: investments minus the balance still owed. It does not discount future dollars beyond the return on cash.
• Pre-tax throughout. Property tax and insurance are the same with either loan and are left out.

Method and sources

The model is calculateRefinance in the mortgage refinance break-even calculator, run with the 30-year as the current loan, the 15-year as the new one and no closing costs. Both loans are amortized month by month with the standard fixed-rate payment formula. The 15-year's lead at a month is every cash difference to that month grown at the return, plus the 30-year's remaining balance minus the 15-year's. The tie return is the return at which that lead is zero at the stay, found by bisection between 0% and 30%. The model was checked against an independently written model of the same comparison.

• Freddie Mac, Primary Mortgage Market Survey: 30-year 7.03% and 15-year 6.26% averages as of September 24, 2026.
• IRS Publication 936, Home Mortgage Interest Deduction: mortgage interest is deductible only when deductions are itemized. Not applied here.

Open this scenario in the calculator

All figures on this page come from the Mortgage Refinance Break-Even calculator. Change any input there and the numbers update.