View in: Desktop
Copyright @2024 TigerDroppings.com. All rights reserved.
- My Forums
- Tiger Rant
- LSU Recruiting
- SEC Rant
- Saints Talk
- Pelicans Talk
- More Sports Board
- Fantasy Sports
- Golf Board
- Soccer Board
- O-T Lounge
- Tech Board
- Home/Garden Board
- Outdoor Board
- Health/Fitness Board
- Movie/TV Board
- Book Board
- Music Board
- Political Talk
- Money Talk
- Fark Board
- Gaming Board
- Travel Board
- Food/Drink Board
- Ticket Exchange
- TD Help Board
Customize My Forums- View All Forums
- Show Left Links
- Topic Sort Options
- Trending Topics
- Recent Topics
- Active Topics
Posted by
Message
Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?
Posted by StringedInstruments on 6/15/15 at 2:52 pm11
I've been deadset on getting a 15 year mortgage for my next house purchase, but it may be better to go with the 30 if I have 20% down. Perhaps you could check my math and let me know if I'm on the right track.
Say I finance $250000 for a house. A 15 year mortgage (2.8%) will be $1700/month and cost approximately $57k in interest. A 30 year mortgage (3.8%) will be $1100/month and cost approximately $167k in interest.
Upon first look, it looks like I would save quite a bit of money with a 15 year mortgage, but if I invested that extra $600/month and achieved a 5% return over the course of 30 years with compounding interest...
I would make approximately $493k on the investment. *I used the $3500 I already have in a Roth to calculate the total.
The 15 year loan would free up $600 of spending money sooner than the 30 if I wanted it, but in terms of saving for retirement, the 30 year loan would bring in about $330k more than the 15 year loan thanks to extra money to invest each month.
Do I have that right, or am I missing something?
Say I finance $250000 for a house. A 15 year mortgage (2.8%) will be $1700/month and cost approximately $57k in interest. A 30 year mortgage (3.8%) will be $1100/month and cost approximately $167k in interest.
Upon first look, it looks like I would save quite a bit of money with a 15 year mortgage, but if I invested that extra $600/month and achieved a 5% return over the course of 30 years with compounding interest...
I would make approximately $493k on the investment. *I used the $3500 I already have in a Roth to calculate the total.
The 15 year loan would free up $600 of spending money sooner than the 30 if I wanted it, but in terms of saving for retirement, the 30 year loan would bring in about $330k more than the 15 year loan thanks to extra money to invest each month.
Do I have that right, or am I missing something?
This post was edited on 6/15 at 2:54 pm
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by iAmBatman on 6/15/15 at 2:58 pm to StringedInstruments
Are you taking the 15-year, monthly note about and investing it after the loan is paid off?
If you really want to get technical, you should also be factoring in the TVM for the tax benefits for the extra mortgage loan interest.
If you really want to get technical, you should also be factoring in the TVM for the tax benefits for the extra mortgage loan interest.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by TigerintheNO on 6/15/15 at 2:59 pm to StringedInstruments
quote:
The 15 year loan would free up $600 of spending money sooner than the 30
Did you factor in that in you would be saving $1100 a month 15 years earlier?
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by StringedInstruments on 6/15/15 at 2:59 pm to iAmBatman
quote:
Are you taking the 15-year, monthly note about and investing it after the loan is paid off?
Good point. Just threw that in the calculator and it comes out about the same. $447k if I invest $1700 for 15 years at 5% return. Of course, I can't imagine being 50 and looking at a free $1700 and investing all of it. I don't know if I'd be that disciplined.
quote:
If you really want to get technical, you should also be factoring in the TVM for the tax benefits for the extra mortgage loan interest.
What is this?
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by Sigma on 6/15/15 at 3:00 pm to StringedInstruments
This could be a long thread with many good answers on both sides. You need to know how/you feel about/prioritize:
1. Savings habits
2. Tax-advantaged savings available
3. How long you might live there
4. Level of risk in the investment of the extra funds
Your final answer will depend on your responses.
1. Savings habits
2. Tax-advantaged savings available
3. How long you might live there
4. Level of risk in the investment of the extra funds
Your final answer will depend on your responses.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by yellowhammer2098 on 6/15/15 at 3:00 pm to StringedInstruments
Yeah not sure if I did this correctly.. but looks like if you took the $1,700 and invested it monthly after paying off the 15 year mortgage and it got 5% return you'd make $454,391 in the 15 years after the mortgage ends.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by I Love Bama on 6/15/15 at 3:01 pm to StringedInstruments
I like the 30 year loans due to the flexibility you have if things (job, health, economy, etc) go south and you need to make a lower payment.
If you pay extra on the loan every month you can achieve almost the the same thing.
I've got a 30 year loan but I am making payments to pay it off in 8 years (5 more to go).
If you pay extra on the loan every month you can achieve almost the the same thing.
I've got a 30 year loan but I am making payments to pay it off in 8 years (5 more to go).
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by yellowhammer2098 on 6/15/15 at 3:01 pm to StringedInstruments
quote:
I can't imagine being 50 and looking at a free $1700 and investing all of it. I don't know if I'd be that disciplined.
Are you disciplined enough to invest the $600 every month then?
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by StringedInstruments on 6/15/15 at 3:03 pm to yellowhammer2098
quote:
Are you disciplined enough to invest the $600 every month then?
Yes.
But I can tell you that because it's in the now. I know that if tomorrow, I had $600 to invest, I would invest it. I don't want to rely on 50 year old me when I don't know him yet.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by anc on 6/15/15 at 3:07 pm to StringedInstruments
You need to factor in your tax savings. Assuming you are in the 25% tax bracket, you can add about $2500/year average for the first 15 years in direct savings.
TD SponsorTD Fan
USA
Member since 2001
USA
Member since 2001
Thank you for supporting our sponsors Posted by Site Sponsor to Everyone
Advertisement
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by iAmBatman on 6/15/15 at 3:16 pm to StringedInstruments
quote:
What is this?
You get a deduction from your income for mortgage interest that is paid for the year.
Using your numbers, I came up with $6,826 in interest for the 15 year mortgage for the first year and $9,421 for the 30 year. The difference between the two is $2,595, so you'll pay an extra 2,595 in interest on the 30 year mortgage in year 1. Now you get to deduct that extra 2,595 on your tax return and assuming you're in the 25% bracket, you'll pay $648 less in taxes because of the extra interest you paid during the year.
quote:
I like the 30 year loans due to the flexibility you have if things (job, health, economy, etc) go south and you need to make a lower payment.
If you pay extra on the loan every month you can achieve almost the the same thing.
This. You get the lower payment of a 30 year note, but you can shovel as much money as you want at the loan, paying it off in however many years you desire. But if you hit a rough patch, the minimum payment can be made for as long as necessary until you bounce back. Life is complicated, we can't foresee all of the many complications headed our way.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by foshizzle on 6/15/15 at 5:47 pm to StringedInstruments
Yes, definitely run the numbers on this. Remember that the interest is tax-deductible if you itemize, that may make a difference.
I refinanced a couple of years when rates were at the bottom and went with 30 simply because the after-tax rate was roughly the long-term inflation rate. You don't want to pay extra to reduce your rate below inflation, that is a negative ROI so it was a pretty easy decision for me. But rates may have climbed enough since then that it's a closer call.
I suspect the 30 is likely still the better deal if you are disciplined about investing the difference but I haven't done a detailed analysis in a while.
I refinanced a couple of years when rates were at the bottom and went with 30 simply because the after-tax rate was roughly the long-term inflation rate. You don't want to pay extra to reduce your rate below inflation, that is a negative ROI so it was a pretty easy decision for me. But rates may have climbed enough since then that it's a closer call.
I suspect the 30 is likely still the better deal if you are disciplined about investing the difference but I haven't done a detailed analysis in a while.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by Ric Flair on 6/15/15 at 6:53 pm to StringedInstruments
Two other questions to ask:
Do you plan on staying in this house for 30 years?
How much do you expect your income to increase over the next 15-30 years? $1100 a month is not much if you're making $150k a year vs 50k a year, especially considering inflation over the next 15-30 years.
Do you plan on staying in this house for 30 years?
How much do you expect your income to increase over the next 15-30 years? $1100 a month is not much if you're making $150k a year vs 50k a year, especially considering inflation over the next 15-30 years.
quote:
How much do you expect your income to increase over the next 15-30 years? $1100 a month is not much if you're making $150k a year vs 50k a year, especially considering inflation over the next 15-30 years.
That's a horrible way to think about it. $1100 a month is still $1100 a month, no matter how much you make. That's the type of thinking that keeps people from gaining wealth.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by Bayou Tiger on 6/15/15 at 8:13 pm to I Love Bama
quote:Yep, I agree and came to post the same thing. I have paid down my mortgages aggressively but also have to be flexible with kids in a single-income family.
I like the 30 year loans due to the flexibility you have if things (job, health, economy, etc) go south and you need to make a lower payment.
If you pay extra on the loan every month you can achieve almost the the same thing.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by Jag_Warrior on 6/15/15 at 8:42 pm to StringedInstruments
While no one can predict the future, let's assume that from year fifteen forward, interest rates will be substantially higher than they are right now (let's say the ten year treasury is back hovering around its historical norm of 6-7%, based on 1960 to the present). If you were a bank or a bond holder, under that scenario, would you want to be long or short a long term debt instrument yielding 3.8%? As the mortgagor, you are effectively short. Again, I can't predict the future. But I've placed my bet on the short side.
I have a 30 year fixed. Other than commercial real estate loans, I've always leaned toward the 30 year fixed for its flexibility (I can pay it as I see fit, from 1 to 30 years). And at my current, crazy low rate, my plan is to not allow the bank to get its 3% money back until I either sell the house or die. I plan on moving into a (free & clear) house that I own closer to town in ten years or so. So at that point, we'll both walk away with our money. But unless I have done something uncharacteristically stupid, having use of their money at 3% should have given me ample opportunity to make a much greater after tax return than if I'd given them their "cheap" money back early. From my days in banking, I learned that whatever the house prefers (pay that cheap money back ASAP, son!), is not necessarily what the consumer should be doing. As happens with high interest bonds in low interest rate environments, don't think that the bank wouldn't love to call that low rate, long term fixed rate debt instrument if it could. I mean, wouldn't you?
But now, what works for me might blow up in your face. I'm not concerned with job loss, divorce or a mystery kid showing up and calling me "daddy". I'm only speaking for myself up there. And who knows, once President Caitlyn Jenner takes office, long term rates could be down to less than .25%.
So, your mileage very well may vary...
I have a 30 year fixed. Other than commercial real estate loans, I've always leaned toward the 30 year fixed for its flexibility (I can pay it as I see fit, from 1 to 30 years). And at my current, crazy low rate, my plan is to not allow the bank to get its 3% money back until I either sell the house or die. I plan on moving into a (free & clear) house that I own closer to town in ten years or so. So at that point, we'll both walk away with our money. But unless I have done something uncharacteristically stupid, having use of their money at 3% should have given me ample opportunity to make a much greater after tax return than if I'd given them their "cheap" money back early. From my days in banking, I learned that whatever the house prefers (pay that cheap money back ASAP, son!), is not necessarily what the consumer should be doing. As happens with high interest bonds in low interest rate environments, don't think that the bank wouldn't love to call that low rate, long term fixed rate debt instrument if it could. I mean, wouldn't you?
But now, what works for me might blow up in your face. I'm not concerned with job loss, divorce or a mystery kid showing up and calling me "daddy". I'm only speaking for myself up there. And who knows, once President Caitlyn Jenner takes office, long term rates could be down to less than .25%.
So, your mileage very well may vary...
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by lsu xman on 6/16/15 at 4:02 am to StringedInstruments
quote:
achieved a 5% return over the course of 30 years with compounding interest...
If life was that simple, everyone would be rich.
re: Still on the Learning Curve - 30 year mortgage better than 15 year mortgage?Posted by ItNeverRains on 6/16/15 at 5:28 am to lsu xman
quote:
If life was that simple, everyone would be rich.
The sad part is this is absolutely false.
Back to OP, the hedge is a 30 if paid like a 15 adds very few payments Over the life of the loan. If in 5-10 years market volatility is out of comfort level, knock down mortgage with that extra $.
The "what if" advantages of a 30 year with tax benefits and flexibility in today's lending environment is a no brainer IMO
Back to top
Follow TigerDroppings for LSU Football News