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## 15-year loan - savings over the life of the loan

**THE SCENARIO**
When I get ads from my lender about refinancing, they typically include a 15-year option, which has a (slightly) lower interest rate, and which 'can save [me] thousands over the life of the loan!'
**The question:** How much money would I save over the life of the loan if I were to borrow $300,000 for 15 years at 4.375% instead of for 30 years at 4.625%? Both loans amortize fully.

**THE SOLUTION**
To solve this one, we need to do three things:
**Part 1: The 15-year loan**
N: 180 (15 years is 180 months)
I/YR: 4.375 (The 15 year loan is at 4.375%)
PV: 300,000 (I'm borrowing $300,000)
PMT: (This is what I'm trying to find)
FV: 0 (The loan amortizes fully)
When I solve for PMT, I get that my monthly payment will be $2,275.86 for this loan.
**Part 2: The 30-year loan**
N: 360 (30 years is 360 months)
I/YR: 4.625 (The 30 year loan is at 4.625%)
PV: 300,000 (I'm borrowing $300,000)
PMT: (This is what I'm trying to find)
FV: 0 (The loan amortizes fully)
When I solve for PMT, I get that my monthly payment will be $1,542.42 for this loan.
**Part 3: The savings**
*rounded* PMT number the calculator gives you before multiplying by the number of payments. If you don't, then when you multiply by 180 or 360, your answer may be off by a few cents. Not the end of the world, but if your answer differs from mine, that's probably why.

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- Figure out the total of all payments for the 15 year loan
- Figure out the total of all payments for the 30 year loan
- Subtract the two to find the savings

The total of all payments in the 15-year loan is 180 x $2,275.86 = **$409,654.80***.

The total of all payments in the 30-year loan is 360 x $1542.42 = **$555,271.20***.

If I get the 15-year loan instead of the 30-year loan, I pay the bank $555,271.20 - $409,654.80 = **$145,616.40 less** overall.

Okay, so if I go for the shorter loan, then I can pay $145k less interest - and given that the 15-year loan only has $110k in interest *overall*, that's pretty significant. So why would I want to take the 30-year loan instead of the 15-year loan? Can you think of any reason that might be more compelling to me than the monetary savings? Or do you have a strong preference for the 15-year option for any reason *other* than paying less interest? Let us know in the comments!