mortgage - 15 year or 30 year? (update #33)

[westwoodmom04]

I would do the 30.

This is an interesting read....

http://www.edelmanfinancial.com/educ...-long-mortgage

Yes, good read, thanks for sharing. And if you deduct your mortgage interest, you are actually paying an even lower rate for interest.

[sste]

Everything I have ever read suggests that it is better to invest your money/save for retirement/save for college than pay off a mortgage early/choose a shorter mortgage. I think there the biggest benefits of the 15 year mortgage are psychological -- your general happiness and also the logic of investing in the market rather than paying the mortgage only works if you actually (ideally via auto-debit) invest in the market!

I will say that knowing this we bought a house on a fifteen year mortgage a few years ago. Part of what happened was that we found a house we liked that was literally 40% less than what we had been prepared to spend. So the 15 year mortgage payment was less than what we had been anticipating! Also, we max out our 401ks, this additional 401k-like vehicle both of our employers offer, our self-employment IRAS (from our freelance income) and we have a healthy emergency fund and a solid amount of college savings. And we bought this house "older" -- DH is 44 and is generally set up to retire at 60-65 but we didn't want a thirty year mortgage influencing that important life decision.

We did have a significant life event in the form of DS requiring tens of thousands of dollars of services due to LDs/special needs and even with the 15 year mortgage we have been able to pay that without stress (I mean we feel it but we are not agonizing about making our bills). I definitely agree to leave yourself some wiggle room -- we would have been devastated if we realized we couldn't afford his educational and medical services and we would have sold whatever we could, including the house, to pay for that. Best not to get to that point!

So maybe this is a case of do what I say not what I do??

[KrisM]

I would do the 30.

This is an interesting read....

http://www.edelmanfinancial.com/educ...-long-mortgage

Interesting to read, but I had to laugh at "Have you noticed that your home is worth much more than it was 10 years ago?". Ours is a good 15% less than when we bought 10 years ago!

Remember the interest deduction is only over the standard. We've paid off our mortgage, but it had been a few years since we were able to deduct anything because we only had $4000 or whatever in interest. And, you can always donate money to charity and get the same deduction.

We paid it off because now we need less in our emergency fund and because now we can save it all for college expenses. We didn't have enough room in our budget to do it all, so we chose to get the shorter mortgage and have it done and now we can save the $1000/month we were spending on the mortgage. We increased our retirement and opened 529s for the kids.

I think there are good reasons both ways and you need to figure out for yourself what is best. Not everyone who gets the longer mortgage will actually save that difference and invest it. Not everyone who pays off a mortgage will save the payments and invest it.

[gymnbomb]

I would go with 30 and put extra toward the principle when you can. Remember at even though the mortgage itself doesn't go up over time, the taxes and insurance almost certainly will!


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[Simon]

I would do the 30 just because I prefer to diversify my investments vs. putting so much of our $$ into real estate.

[vludmilla]

You can look at this website and use some of his calculators to determine what the savings would be between a 15 year mortgage at x rate and a 30 year mortgage at x rate and even include theoretical extra payments on the 30 year to see what you would save total over time with the shorter loan period. www.mtgprofessor.com

I will say that, statistically, few people actually save and invest the money that would have gone into the 15 year mortgage payment so for many people who can afford to do so, it is a better option as it is like forced savings.

[KrisM]

30 year. Why rush to pay it off?


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For us, we were happy we went with the shorter term because we had a lot of equity when prices crashed. The value of our house dropped about 45% at the lowest. Knowing we weren't underwater and could move if we had to was a comforting feeling. Michigan had about 13% unemployment and the auto industry was really bad for a while. We know of a few people who lost their jobs and then their house because they couldn't pay the mortgage and they couldn't sell because they owed $100k more than it was worth. So having the freedom to be able to move and not worry about the value was very nice.

[lalasmama]

We did a 30-yr, but we will have it paid off in about 20. Kind of allows us the "best" of both worlds: We have a low mortgage payment that we can afford, and then we send in $xxx more each month... If there's a tight month, for some reason, we may not send that extra in, but we won't be penalized for not sending it in, since it's above the payment agreement. Yes, we have the higher interest rate, but it will still be paid off early because of the extra payments, which will lessen the impact of that higher rate.

[Twin Mom]

I would do the 30 because it leaves you flexibility in case there is a financial problem in the future such as a job loss, medical emergency, etc. If you pay it like it's a 15 then you will minimize the impact of the slightly higher interest rate. It's worth paying a bit more for the peace of mind of knowing you can pay less if you need to.

[squimp]

A 30-year mortgage is usually the financial advice you get, but makes the most financial sense if you really are investing the money with a better return than your mortgage rate. Or if the 30-yr mortgage rate is what you can live on within your comfort zone. We put a lot in our retirement, which does make far more return than our mortgage rate. We still do have a 20-year mortgage because we can afford the larger payment, because we like the smaller interest rate, because I know it's money being "saved" rather than frittered away, and because I want the mortgage paid off before I retire. It's a good compromise for us.