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re: First Mortgage Question - 15yr vs 30yr vs. Investing "Extra Payments"
Posted on 10/11/17 at 9:23 pm to HardHat
Posted on 10/11/17 at 9:23 pm to HardHat
I was I facing the same decision at your age. We went with a 30yr mtg and then paid extra with a goal of paying it off early, The economy was shaky at the time, so I wanted the peace of mind of being able to drop to the minimum payment of the 30year if one of us lost our job or the like.
Rates dropped down the road, we refinanced to a 15, and paid it all off in a total of about 13. It worked well, especially since we stayed in the house. As someone else said, if you plan to move on or up in a few years, don’t bust your arse on payments,
Rates dropped down the road, we refinanced to a 15, and paid it all off in a total of about 13. It worked well, especially since we stayed in the house. As someone else said, if you plan to move on or up in a few years, don’t bust your arse on payments,
1
Posted on 10/11/17 at 10:14 pm to HardHat
There are two major factors you're forgetting:
1) With a mortgage you're probably going to be able to itemize deductions. This means your interest payments reduce your tax burden, which means your true interest rate could be substantially lower than you think.
This shrinks the difference between the 15 and 30 year options.
2) Long term rate of inflation is (typically) around 2% or so. So it is a mistake to focus on monthly payment amounts alone because $1000/month in year 30 isn't nearly as valuable as $1000/month today.
1) With a mortgage you're probably going to be able to itemize deductions. This means your interest payments reduce your tax burden, which means your true interest rate could be substantially lower than you think.
This shrinks the difference between the 15 and 30 year options.
2) Long term rate of inflation is (typically) around 2% or so. So it is a mistake to focus on monthly payment amounts alone because $1000/month in year 30 isn't nearly as valuable as $1000/month today.
Posted on 10/11/17 at 10:15 pm to Twenty 49
As others have said you can't go wrong with either option. You'll be way ahead of most people. If you wan't to weigh your options I highly recommend this article from the CFA website:
CFA Institute
In theory, a 30 year mortgage will act as a buffer against rising rates.
CFA Institute
In theory, a 30 year mortgage will act as a buffer against rising rates.
This post was edited on 10/11/17 at 10:24 pm
Posted on 10/12/17 at 8:19 am to HardHat
You may be overthinking this.
If it is your first mortgage, chances are you won't be in the house year 15 or year 30. I think the situations you bring up are reasonable but in my opinion are unrealistic and irrelevant considering my previous sentence.
I could be completely wrong and you live in this house the rest of your life. I would go 30 and invest the difference. You can always refi to a 15 later on.
If it is your first mortgage, chances are you won't be in the house year 15 or year 30. I think the situations you bring up are reasonable but in my opinion are unrealistic and irrelevant considering my previous sentence.
I could be completely wrong and you live in this house the rest of your life. I would go 30 and invest the difference. You can always refi to a 15 later on.
Posted on 10/12/17 at 11:01 am to HardHat
Financial freedom has a price. What is it worth to you?
Posted on 10/12/17 at 1:44 pm to notsince98
If you are truly going to buy the exact same house, invest the extra, and live the same life then sure investing it is great.
The mistake most make is that they buy a bigger house with the 30 year that costs more money in insurance, taxes, utilities, wife needs, etc., and sink way more money into their house they don't need than a 15 year loan would afford them.
Also realize the average mortgage is 5 years, the chances of moving, refinance, buying up, etc. is very high.
The mistake most make is that they buy a bigger house with the 30 year that costs more money in insurance, taxes, utilities, wife needs, etc., and sink way more money into their house they don't need than a 15 year loan would afford them.
Also realize the average mortgage is 5 years, the chances of moving, refinance, buying up, etc. is very high.
Posted on 10/12/17 at 9:33 pm to HardHat
quote:
I agree with you, but is the 15 year the smart play?
Is it better to have all your money tied up in equity at year 15, or have half of the money in equity and the other half in a separate account that you have control over?
My last 2 houses have been on 15year mortgages. As others have said, you likely won't be in the house that long anyway. When you move or refinance your equity comes out, and you have a choice of what to re-invest. The numbers are close either way. You're still hung up on the 15 year being suffocating though. Buy what you can afford, either way, and you'll comfortably live and have other investments.
I'm admittedly debt-averse, because no true Tigerdroppings baller has a massive mortgage to support their side investments.....
Posted on 10/15/17 at 5:11 pm to dragginass
Dude invest the money! I'm sure within the next 15 years you'll find something better to do with the money, like start a business, and you can always pay more principle if you want to.
Nobody gets rich from saving money.
You can either have money stagnant in your house, banking on appreciation, or investments that compound. Both markets can crash though.
There is a reason why shorter loans have lower interest rates. It's because banks make more money off of them by flipping their money sooner.
Nobody gets rich from saving money.
You can either have money stagnant in your house, banking on appreciation, or investments that compound. Both markets can crash though.
There is a reason why shorter loans have lower interest rates. It's because banks make more money off of them by flipping their money sooner.
This post was edited on 10/15/17 at 5:18 pm
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