30 year vs. 15

[dawnwes]

Sounds like you are aware of the pros & cons. Only you can decide which option is better.

FWIW - our first mortgage was a 20 year.

Yeah, I think ultimately we have to make the decision.

I really don't want to be an adult!

[disneysteve]

I'm a believer in flexibility, even if it means a somewhat higher interest rate, because you just never know what will happen 5 or 10 or 15 years from now.

Both of our current cars were purchased on 6-year loans primarily because they were offering a special rate and that was the best possible deal. I don't typically recommend greater than a 3-year loan though because I know most people will use the full time to pay it off but I know that I personally have the discipline not to do that. I paid off my car in 1 year and will pay off DW's in 3 years - it would have been sooner but stuff happened, hence my original point. To me, the longer term was just a safety blanket.

As for the house, we bought on a 30-year but we were young and broke. We couldn't have done a 15 and rates were much higher then (1994). The last time we refinanced, we dropped it to a 15 and we've paid extra on that. In the end, we'll have the house paid off in under 30 years from the original purchase date. I'm not sure exactly how much less at this point. Probably only 3-4 years early.

[greenskeeper]

I went with a 30 yr for flexibility as well. We send the balance of extra funds towards the principal every month and it varies between $500 and $2000. We are roughly on target to pay off the 30 year in about 12 years or less.

[TexasHusker]

Why would you want to pay more interest?

Because 4% is almost free money.

[parafly]

It's a personal decision.

From a purely financial standpoint, you are obviously better off with the 15 year mortgage. From a flexibility and peace of mind standpoint, you are better off with the 30 year mortgage.

Personally, I would go with the 30 year mortgage and plan on paying it off as if it were a 15 year mortgage. You'll take a relatively minor financial hit in the long run, but you'll sleep better at night knowing that you have more financial flexibility if you happen to fall on tough times in the future.

[MonkeyMama]

I much prefer the flexibility of 30 years. Too much "life" has happened, for us.

We initially had a 15-year mortgage on our first home, but we did 30-years on our second home because we owned two homes for a time. Then my spouse lost his job right before we refinanced to a lower interest rate. I was also very pregnant at the time so we just did the 30-year. I can't say we have paid ahead because of the "life happening". (The "life happening" goes far beyond any of this. This is the easy stuff. Easy peasy, because we bought very conservatively).

I do not agree that 15 years is the obvious better choice financially. I have known way too many "house poor" people. The "big picture" is much more important to me. If you can save for retirement aggressively and pay down your mortgage in 15 years then that is all good. If not, I'd rather save for retirement aggressively. We would be so much further behind (overall) if we paid off our mortgage faster. As is, we are very comfortable. The mortgage is just one very small piece of a big financial pie.

All of that said, I think I am fairly middle of the road. I don't want to be house poor. But I don't want to have a mortgage forever either. Age would be a factor for me. I would not take a 30-year mortgage on today (at 39) even if I planned to pay off faster. 20 years, maybe. I don't want the worst case to be that I still have a mortgage in my 70s, 80s, 90s.

[clatoden99]

If you look at the total repayable then you will see a BIG difference.

Also, it is easy to look at finance over the indefinite term on a spreadsheet and yes there are good reasons to plan your children's wealth rather than your own. However we as humans are only on this earth for a short time so by paying off your mortgage after 15 years instead of 30, you give yourself the opportunity to live much more comfortably once the mortgage is paid off and maybe retire earlier.

[corn18]

I think a 30 year mortgage paid off on a 15 year schedule is a much better approach than a 15 year mortgage. I had no idea 30 years ago what my life would look like today. Glad I gave myself the flexibility.

[Fishindude77]

One of my kids is not so disciplined with finances, so I recommended a 15 year mortgage for them, knowing they probably wouldn't pay down a 30 year mortgage quickly, but more likely just make the required payment. No point in having a mortgage for three decades.

The other is really good with money, paid off their first house in five years and recently purchased an real nice place with about 40% down payment. For them, I recommended go with whatever has the lowest interest rates, which turned out to be a 30 year mortgage. I'm sure they will pay it off way early.

[Jluke]

Since we've been focused on interest, I looked at what the monthly payments (Principle and Interest only) would be:

$1702 15-year (57k in interest)

$1165 30-year (170k in interest)
$1829 30-year like a 15 (78k in interest)

$1488 20-year (107k in interest)
$1688 20-year with +$200/mo (88k in interest)

I'm thinking the 20-year could give some flexibility and a guaranteed 10-year less term vs 30.

Plus, with 200k in cash dawnwes can really engineer her monthly payment/loan term to work for her. maybe even put 50k aside to draw from as needed to make extra payments... all depends on house price.

[dawnwes]

If you look at the total repayable then you will see a BIG difference.

Also, it is easy to look at finance over the indefinite term on a spreadsheet and yes there are good reasons to plan your children's wealth rather than your own. However we as humans are only on this earth for a short time so by paying off your mortgage after 15 years instead of 30, you give yourself the opportunity to live much more comfortably once the mortgage is paid off and maybe retire earlier.

Yes, I listed all of the differences on page 1.

[dawnwes]

Since we've been focused on interest, I looked at what the monthly payments (Principle and Interest only) would be:

$1702 15-year (57k in interest)

$1165 30-year (170k in interest)
$1829 30-year like a 15 (78k in interest)

$1488 20-year (107k in interest)
$1688 20-year with +$200/mo (88k in interest)

I'm thinking the 20-year could give some flexibility and a guaranteed 10-year less term vs 30.

Plus, with 200k in cash dawnwes can really engineer her monthly payment/loan term to work for her. maybe even put 50k aside to draw from as needed to make extra payments... all depends on house price.

Right. The pricing will be the issue.

I looked at houses yesterday with a realtor. Oy, prices have really gone up. AND there are very few homes available! A house I really liked went on the market last week and was sold by yesterday, so I couldn't see it.

We may end up borrowing more. However, I would really, really like to know about my job situation before making a decision.

My salary will ultimately be going towards savings and the college fund. But a little buffer would be helpful.

[Nutria]

Why would you want to pay more interest?

Nobody wants to pay more interest, but the lower payment gives you handy flexibility.

[Nutria]

What I can't find is a calculator to calculate paying more some years and less some years.....

I've got a spreadsheet with a column for extra monthly payments. Would you like it.

[FLA]

From a flexibility and peace of mind standpoint, you are better off with the 30 year mortgage.

Personally, I would go with the 30 year mortgage and plan on paying it off as if it were a 15 year mortgage. You'll take a relatively minor financial hit in the long run, but you'll sleep better at night knowing that you have more financial flexibility if you happen to fall on tough times in the future.

that's what I did and luckily I did because tough times fell on me but my mortgage was paid off early. Had it not been, I would've at least had lower mortgage bills on the 30 yr and would've been able to pay it easier on a lower income. I wouldn't have had that option with a 15 yr. Peace of mind was worth it.