Lock a lower rate and pay off your loan faster.

There are two ways to save money: pay off your loan faster or get a lower interest rate. Most of the time, lenders charge less for loans that last 15 years than for loans that last 30 years. If you pay a lower interest rate for 15 years instead of 30 years, you can save a lot of money, often in the six figures, on a standard loan amount. The exact difference depends on your rate and balance, but the shorter term always has a big structural advantage.

Expect your monthly principal and interest payments to be about 40–50% higher if you take out a 15-year loan instead of a 30-year loan for the same amount of money. The exact difference depends on the rate spread between the two products when you lock in, but the higher payment is because you are paying it back in half the time. That said, a smaller part of each payment goes to interest and a bigger part goes to building equity. So, a larger portion of every dollar you spend lowers your loan balance.

Lenders have less risk with a shorter loan term because they only have to deal with the chance of default and changes in interest rates for half as long. A lower rate means that there is less risk. Depending on the market, the difference between a 15-year and a 30-year fixed rate is usually between 0.25 and 0.75 percentage points. This rate benefit, along with the shorter time to pay off the loan, is why a 15-year loan saves a lot of money in interest.

A 15-year term is good for people who can afford the higher monthly payment without giving up their retirement savings, emergency funds, or other important financial goals. It works especially well for homeowners who are refinancing after building up a lot of equity, families with two incomes and stable earnings, and buyers who want to pay off their mortgage debt before they retire. A 30-year loan with extra payments might give you more financial freedom if the higher payment would make it hard for you to save up for things you need.

With a 15-year term, you can't pay more when you have the money and less when you don't. The trade-off is discipline: most borrowers don't always make those extra payments, so they end up paying a lot more interest over the full 30-year term. The 30-year loan will also have a higher interest rate, so even with extra payments, the math doesn't fully close the gap unless you are aggressive and consistent about it.

Yes, but you need to change the rate and term. You would get a new 15-year loan to pay off the rest of your 30-year mortgage. This makes the most sense when your income has gone up enough to easily handle the higher payment or when interest rates have gone down. Keep in mind that refinancing costs money to close (closing costs); usually 2–5% of the loan balance. This means that the savings on interest need to be more than the costs of the move up front for it to make sense financially.

The worst part is that cash flow goes down. You have less money to invest, pay for unexpected costs, or save for things like education or retirement accounts that are important to you. Some borrowers can also get a smaller loan with a 15-year term because lenders look at the higher payment when deciding how much debt you can afford. If you lose your job or have a big bill to pay, the fixed higher payment is a lot more to handle than that of a 30-year mortgage.