What your result means
A shorter term generally requires a higher monthly principal-and-interest payment but can substantially reduce total interest if held to payoff.
Formula and assumptions
Each payment uses the fixed-rate amortization formula for its term and entered rate. Total interest = monthly payment × number of payments − original principal.
- Both loans are fixed-rate and held to final payoff.
- The loan amount is identical.
- Taxes, insurance, mortgage insurance, points, and other fees are excluded.
Worked example
For a $320,000 loan, compare a 15-year rate of 5.90% with a 30-year rate of 6.50%. The 15-year payment is higher, while total scheduled interest is lower.
Limitations
Actual APR, points, credits, mortgage insurance, qualification, opportunity cost, refinance or sale timing, and cash-flow risk can change which loan is preferable.