Quote:
Originally Posted by maat55
After you pay a house off in 15 years, you can invest your house payment for another 15 years. After 15 years on a 30 year note, your just beginning to pay down the house. If I want more house later, I can just pay cash without the interest.
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Ahh- but the fault of this logic is that if I had the lower payment earlier from 30, the difference can be invested in years 1-15, probably earning higher than the rate on the 30 yr or 15 yr fixed could even hope for (like an 8% return).
Assume this situation
Mortgage amount of $166,700
30 yr fixed at 6%, payment of $1000 ($999.45)
15 yr fixed at 5.5%, payment of $1362.
$362*12=$4344
If a person put $4344 in their Roth IRA each year earning 8%, that would be $113k after 15 years. The mortgage would still have $118k owed, but if they NEVER put another dime in the IRA, by year 30 the 113k would compound to $373k. If they added the $4344 into Roth each year 1-30, they would have $531k, plus a house worth $166700.
If a person did not invest until the 15 year was paid off (because that $4344 was put into house), the $1362/month invested would be $16344/year. $479k would be the result.
It would beat investing for 15 years and stopping, but be $50k short of 30 yr fixed.
I could see arguments either way. The risks taken are less in the first situation
$4344*30=$130,320k invested compared to $245,160 invested.
30 yr fixed is a return of 531/130=4X.
15 yr fixed is a return of 479/245=2X
I see the 4X and know that is direction I would go- because if returns at any time exceeded 8% during one of those first 15 years, the 30 year fixed comes out WAY ahead.