Mortgage Term Advice Needed

[Biffard]

Just looking for some opinions on what you would do if you were in my shoes.

Quick Facts

-30 years old, married with a kid.
-$100,000 available for down payment on a mortgage.
-$4,500 monthly take home
-$1,500 monthly expense (not including a mortgage)
-Only debt is $280 a month on a car loan. ($13,000 remaining)
-$8,000 Emergency Fund
-Retirement is @10% contribution with a balance of $30,000

I am extremely interested in doing a 15 year loan on a $275,000 house. However, to make this work, I would have to put the entire $100,000 down on the house. On the other hand, I would like to pay off the car and bulk up the emergency fund.

I am also considering a 20 year mortgage and then paying some on the car and adding some to the emergency fund. I like the idea of a 20 year mortgage but I like the idea of a 15 year mortgage too but it has some more risk involved.

Any thoughts or suggestions would be appreciated.

[autoxer]

You could always take the 20 year mortgage and pay extra towards the principal, so that it will be paid off in 15 years. That would give you the flexibility to lower your payment if your circumstances change.

[Eagle]

@Biffard
With a family (wife & kid, potentially growing family... ?) I'd be very cautious of putting the full $100,000 toward the down payment on the house. I'd put $55,000 down to avoid PMI. Unless of course there is a significant difference in the interest rate if you put the full $100,000 down?

I agree with autoxer consider getting the 20 year.

I also don't think $8,000 in your emergency fund is enough as a home owner.

[greenskeeper]

I would go with a 20 or even 30 year loan but pay extra depending on how quickly you want to pay off the loan or how much you can afford per month in addition to the regular payment.

It's nice to have the ability to "fall back" on the lower payment if something comes up.

[HappySaver]

I would go for the 30 year option. 15 is definitely too tight, given your income that supports 3 people.

Can you provide some extra numbers - what would the 20 versus 30 year payments be, including tax and insurance?

You can always make extra payments. Your monthly expenses will go up. It's not just the mortgage payment plus tax and insurance, but house maintenance, repairs, increased utilities, and possibly new furniture/decorating/improvements.

[sandrark]

We chose to go with a 20 year, 35% down, and then we ran the amortization schedule to pay it off in 15.

We have that payment auto-drafted each month, so we are making good progress on it.

There is NO WAY I'd ever sign up for a 30 year mortgage voluntarily. The 20 is a great middle ground between "way expensive every month" and "way expensive over 30 years."

[Biffard]

Thank you all for the input so far. Based on your comments and my own research I am feeling more confident in a 20 year loan than a 15 year loan. This is mainly based on my concern for not knowing what the future holds and my risk tolerance being a little lower than other's.

I've seen some comments around having a bigger emergency fund, what would be the minimum EF you recommend? 3 months worth of take home pay?

[snafu]

I see an EF as 3 months basic expenses if your employment is stable although I admit to now keeping only two months totally 'liquid.' I feel that a lot of our regular monthly outgo can easily be slashed if something went seriously off the tracks. I'd cancel cable and internet, halt discretionary buying and slash food budget based on what's at hand. I notice internet is available everywhere!

[ACarboni]

A 20 year fixed mortgage may be a good compromise for you if you desire a lower monthly payment than a 15 year loan offers.