30 year vs. 15

[dawnwes]

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

sure!

[sblatner]

I am totally in favor of a 30 year loan. You don't say how old your kids are but if they are teens, you will have college soon. You can pay it like a 15 year loan to start, maybe cut back if you need to during college and then once the kids are out of college, you can put more towards the house and pay it off early since you won't have college bills anymore.

My husband was laid off in 2002. I was so thankful we had a 30 year loan and not a 15-20 year loan. We had always paid more but for six months, we were able to pay less. Once he was gainfully employed again, we started paying more on the mortgage again.

This might not work for everyone but if you are disciplined, you could do it.

[tripods68]

Mistake we made

If we had a 'reset' button, we would redo our loan into a 15 year mortgage. We could have waited to save extra money towards down payment (above 20%) so we could financed a 15-year instead of 30 in 2003 (hindsight 20/20). Its tough to look of course. It's painful to think whenever I run the numbers over and over.

I pulled my old mortgage docs in 2003:

15-year @ fixed Payment $2158.00
30-year 5/1 @ Payment $1500.00
Difference of $658.00

At the time, we needed a new furniture & fridge so we elected for 30-year, hoping to refinance in few years. Well that refinance happened last year 2015, 12 years later (after 2009 we were underwater till 2013). Had we chosen wisely, in this case 15 year, we would be close in paying off in 2 years 2018, or maybe less.

The future value of $658 monthly difference for 15 years (0% return with inflation) is $118K, assuming of course we were consistently saving but we didn't.

Had we chosen a 15-year (pay off date Jan-2018) we would save that additional $2000 (rounding down) towards retirements/savings. The extra savings future value is worth $360K @ zero return w/inflation. Let's say we put that $2000 a month extra into S&P for 15 years making conservative return. The future value after 15 years earning 5% is worth $534K. I consider this my "opportunity loss" for taking 30 year mortgage. That blows!

Of course, our plan today have changed, we learn from our mistakes, we plan to pay off our home in 5-7 years, not 15 year.

With the housing market price going up again (depending your geographic location), its seems like we are heading back to relive 2008 market crush. The mistake most people make, is buying more than what they could afford. They did not put enough money, or used fancy "debt leverage" lenders used to put people into mortgages (by the way many of these Lenders like WAMU are no longer in business today) they could not afford in the first place.

At the end, people need to step back and realize owning a home is not an investment. It's a long term asset that you have to maintain, repair, and pay taxes on. Think about the interest cost. Choose wisely!

[Nutria]

sure!

It's attached. A better name than "calculator" would be "payment schedule".

[~bs]

Isn't the 15 year mortgage somewhat better than a 30 year mortgage paying it down in 15 years? shorter term mortgages carries less risk to the bank, and therefore lower stated interest rate.

Of course since no one is psychic and knows exatly what the future holds, the 30 year mortgage is probably better, as you're not obligated to make that higher payment.

[dawnwes]

Isn't the 15 year mortgage somewhat better than a 30 year mortgage paying it down in 15 years? shorter term mortgages carries less risk to the bank, and therefore lower stated interest rate.

Of course since no one is psychic and knows exatly what the future holds, the 30 year mortgage is probably better, as you're not obligated to make that higher payment.

I stated the differences in the interest rate earlier in the thread.