15 year or 30 year mortgage?

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willthrill81
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Re: 15 year or 30 year mortgage?

Post by willthrill81 »

nwa-non wrote: Tue Jul 07, 2020 8:59 pm For home buyers (to draw the distinction between home buyers and re-financers), especially first time home buyers, going for a 30-year mortgage makes most sense, most of the time. Then try to pay off as a 10- or 12-year loan.
There are two rubs with that plan. First, you're paying a higher interest rate for the 30 year vs. something like a 15 year. Paying off a 30 year in 15 vs. getting a 15 year means thousands of extra dollars paid in mortgage interest for every $100k borrowed. It can be a high price to pay for the ability to 'reduce' one's payments from the 15 year level to that of the 30 year. IMHO, many would be better served by having an appropriately sized emergency fund rather than paying a higher interest rate for many years; the effective rate of return on the additional funds needed to build a bigger emergency fund for this purpose can be ridiculously high.

Second, many people say that they will pay off a 30 year mortgage in far less time but wind up spending the difference instead. It's hard to make 180 'right' decisions in a row.
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Jason95357
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Re: 15 year or 30 year mortgage?

Post by Jason95357 »

nwa-non wrote: Tue Jul 07, 2020 8:59 pm For home buyers (to draw the distinction between home buyers and re-financers), especially first time home buyers, going for a 30-year mortgage makes most sense, most of the time. Then try to pay off as a 10- or 12-year loan.

If you were paying it as a 15-year loan on a 30-year note, you will end up making a few more payments than 180.

I've created a calculator where you can play with numbers => https://docs.google.com/spreadsheets/d/ ... =838586321 .
Great resource to run the numbers. 30 + extra vs. 15 in the default spreadsheet saves 12 payments, or 1 year. Is this worth the risk of losing a home vs. the flexibility of a 30-year? I don't think so. One would also want to increase their emergency fund amount about 50% as far as the mortgage, vs. on a 30 year loan you don't need to "waste" as many funds in an emergency fund.

The only advantage I see with a 15-year loan is it forces a person to pay it off "early" vs. a 30-year with extra principal of the same total payment amount as the 15-year loan. With a 15-year loan there is no "choice" to skip the extra principal during Christmas for some extra toys or whatever - or more than likely, charging way too much Christmas stuff and having to use Jan - Feb or even March extra principal to pay it off... and oh no, here comes the tax bill in April, gotta float stuff on the credit card and they use the extra principal again...

Being a single income family, and having been laid off literally two months after buying my current home, I'm very, very glad we did a 30-year. For 18 months I scrapped and scraped to find consulting work. Only 1 month were we late on a payment (21 days, but enough to get a late fee) - but fortunately not late enough for them to report it on the credit history. If we'd had a 15-year, I'm almost certain we'd have lost it to foreclosure.

Now, with greatly reduced expenses (4 grown kids moved out of the home) and with 6 months of emergency funds, it wouldn't be as big a deal. I still don't think it's worth saving a year of payments. I can find some extra expenses to trim if I really want to save a year off my mortgage.
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Re: 15 year or 30 year mortgage?

Post by BrandonBogle »

Jason95357 wrote: Tue Jul 07, 2020 9:23 pm One would also want to increase their emergency fund amount about 50% as far as the mortgage, vs. on a 30 year loan you don't need to "waste" as many funds in an emergency fund.
...
With a 15-year loan there is no "choice" to skip the extra principal during Christmas for some extra toys or whatever.

Being a single income family, and having been laid off, literally two months after buying my current home, I'm very, very glad we did a 30-year. ... If we'd had a 15-year, I'm almost certain we'd have lost it to foreclosure.

Now, with greatly reduced expenses (4 grown kids moved out of the home) and with 6 months of emergency funds, it wouldn't be as big a deal. I still don't think it's worth saving a year of payments. I can find some extra expenses to trim if I really want to save a year off my mortgage.
Personal circumstances make all the difference. In my situation, I have 2x the total mortgage in my taxable account. In the event of dire emergency and long-term unemployment, I could just pay off the loan (I wouldn't, but I would tap my holdings for monthly payments if necessary).
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Re: 15 year or 30 year mortgage?

Post by tvubpwcisla »

I would go 30 and make an extra payment when I get a bonus, etc...Can pay off in 15 years or sooner. You may decide to delay paying it off with rates so low!
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Re: 15 year or 30 year mortgage?

Post by willthrill81 »

Jason95357 wrote: Tue Jul 07, 2020 9:23 pm
nwa-non wrote: Tue Jul 07, 2020 8:59 pm For home buyers (to draw the distinction between home buyers and re-financers), especially first time home buyers, going for a 30-year mortgage makes most sense, most of the time. Then try to pay off as a 10- or 12-year loan.

If you were paying it as a 15-year loan on a 30-year note, you will end up making a few more payments than 180.

I've created a calculator where you can play with numbers => https://docs.google.com/spreadsheets/d/ ... =838586321 .
Great resource to run the numbers. 30 + extra vs. 15 in the default spreadsheet saves 12 payments, or 1 year. Is this worth the risk of losing a home vs. the flexibility of a 30-year? I don't think so. One would also want to increase their emergency fund amount about 50% as far as the mortgage, vs. on a 30 year loan you don't need to "waste" as many funds in an emergency fund.
According to BankRate.com, the average 30 year mortgage rate today is 3.25%, the rate is 2.75% for a 15 year mortgage. At those rates, a 30 year mortgage for $100k would be $435.21/month; for a 15 year mortgage, it would be $678.62.

In order to have a six month emergency fund, you would need $2,611.26 for the 30 year mortgage and $4,071.72 for the 15 year mortgage, a difference of $1,460.46.

If you paid off the 30 year mortgage in 15 years, the total amount of interest paid would be $26,480.60 vs. $22,151.60 if you took out the 15 year mortgage to begin with. That's a difference of $4,329. (Note that is the nominal price to be paid for paying off a 30 year mortgage in 15 years vs. getting a 15 year mortgage to begin with. Considering that the typical mortgage is about $300k, that works out to about $13k in additional interest, which few are able to deduct from their taxes now.)

A $1,460.46 larger emergency fund leading to a savings of $4,329 (after-tax for most people) over a 15 year periods corresponds to an effective rate of return of 9.22% (and it would be slightly higher than that due to the additional return you would get from the interest on the additional amount in the emergency fund). That's really high for a guaranteed, after-tax rate of return and doesn't seem like a "waste" to me.

Even if you wanted a 12 month EF for the 15 year mortgage, your effective rate of return on the higher emergency fund amount would still be 4.61%, which is still very respectable.
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Re: 15 year or 30 year mortgage?

Post by Ron Ronnerson »

BrandonBogle wrote: Tue Jul 07, 2020 8:57 pm
Ron Ronnerson wrote: Tue Jul 07, 2020 8:45 pm Let's use current rates instead. I'm going to use 2.5% for 15-year and 2.875% for 30-year (that's the rate I'm currently locked for on a 30-year).
I similarly have things I dislike about "Dude's" video. Like showing an after-inflation rate on the mortgage (I'll forgive the tax reduction as the removal of that is relatively recent), but then use the nominal instead of real historical rate of return for the US stock market. And even that would be optimistic IMO for a calculation today.

Meanwhile, for me, my options are 2.25% 15-year at no cost refi vs. 2.75% 30-year at no cost refi, so a slightly wider spread/larger discount on the 15-year.

Personally, I plan on the 15-year as the potential investment savings isn't that large and I already save 44% of my gross income and have leftover funds in the budget after the 15-year payment.
It's funny you mention the tax deduction for mortgage interest that Dude uses in the video. That made me raise an eyebrow too. He used 2019 in his example so I'm going to be less forgiving than you on that as the tax law had changed by then and I believe far fewer people are itemizing these days.

Personally, I like to take calculated risks and currently benefit from keeping expenses low as that helps me qualify for the premium tax credit for health insurance. I am also expecting a pension that should cover my expenses in retirement so don't mind having a small mortgage in the future. I am also not debt averse. These particulars make the 30-year tempting for me. It sounds like you looked at your situation and decided that the 15-year is the way to go for you and I totally understand as well as respect that.

By the way, 2.25% on a 15-year is a great rate! I think a 15-year term is a fine choice and can make a lot of sense for a lot of people. The same is true of a 30-year as well. I think people shouldn't overgeneralize and say one is better because everyone's situation and preferences are different. I would just advocate that people run the numbers for their own circumstances and look at amortization tables too. For some reason, I love looking at those these days. This pandemic has driven me to taking up odd hobbies.
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Re: 15 year or 30 year mortgage?

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tomwood wrote: Mon Jul 06, 2020 6:11 pm
onthecusp wrote: Mon Jul 06, 2020 3:24 pm If your career is likely to include pretty regular pay increases then I would stretch for the 15 year like we have the last 4 houses we bought.
This is the case for my job.

If we try 15 and it’s just keeping us too thin as years go by, is it a difficult or wasteful process to ReFi to a 30 year?
As much as I like to encourage 15 yr mortgages because it has worked well for us, it may not be right for you. If you are really just too close to the edge because of local housing prices/wanting to be in a particular area etc. there is nothing wrong with a 30. I think it could well be a bit wasteful to start one way then change.

When rates are going down, you can do a "no cash" refi and get a lower rate just not as low as if you paid for the one time expenses of making a loan. So it starts to look like refi's are free. But of course they are not; the right move when rates are down, but not free. If you refi in a time of flat rates you are either going to switch up to a higher rate or pay hundreds maybe a thousand in closing costs cash or added to the loan. That would negate a whole lot of .25% savings.
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Re: 15 year or 30 year mortgage?

Post by BrandonBogle »

Ron Ronnerson wrote: Tue Jul 07, 2020 9:51 pm By the way, 2.25% on a 15-year is a great rate! I think a 15-year term is a fine choice and can make a lot of sense for a lot of people. The same is true of a 30-year as well. I think people shouldn't overgeneralize and say one is better because everyone's situation and preferences are different. I would just advocate that people run the numbers for their own circumstances and look at amortization tables too. For some reason, I love looking at those these days. This pandemic has driven me to taking up odd hobbies.
Thank you! I wholeheartedly agree. For me though, the effective term will actually be 24 years as I'm 9 years into mortgages (multiple refis) since buying the house.

With many things once it "gets in the weeds" on this forum, what works for someone emotionally should carry greater weight. Someone who has a 60/40 vs. 70/30 allocation will have a different long-term outlook, but if it lets the person sleep well at night to be 60/40, then that is the right answer IMO. This is assuming the general Boglehead tenants are already accounted for (savings lots, living below your means, keeping costs in check, staying the course). For me, my emotional roadblock was to not pay mortgage payments on this house for more than 30 years, regardless of the number of refinances. So the purchase mortgage and first two refis were 30 years, with the one this past May (2.625% 15-year no-cost refi then) and the one now in July being 15 years. I know I would have angst 2/3 of the way into the 30 year mortgage, which then would be mostly principal payments given the small balance. Meanwhile, at 15 years, I will have a mortgage into retirement as well as I plan to retire (or have the option to) in my 40s.
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Re: 15 year or 30 year mortgage?

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tomwood wrote: Mon Jul 06, 2020 6:11 pm If we try 15 and it’s just keeping us too thin as years go by, is it a difficult or wasteful process to ReFi to a 30 year?
OP, it sounds like you are on sound footing to afford the 15 year with regular pay increases and a second earner coming online. One of the most satisfying things of a 15 year is how fast you build equity, so, even if you found things too thin as the years go by, you could refi to another 15 on a reduced principal balance and have lower payments.

Are you maxing out your other tax advantaged space, i.e. Roths and 401Ks? If so, I'd go for the 15. If not, I'd take the 30, fill up that investment space, and refi to a 15 when you have a second earner.
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Re: 15 year or 30 year mortgage?

Post by Admiral »

30 year mortgages are not bad. It's just that 15 year mortgages are better (in most cases) because they both reduce interest paid and build equity faster. In general you should aim to have your mortgage paid off by retirement. Thus, taking out a 30 year note at, say, age 50 is likely a bad idea. Conversely, if you take out a 15 year in your early 30s, you can have it nearly paid off when kids enter college, helping with cash flow.

For a "forever" home, I believe a 15 year is a better call most of the time, if you can swing it. For most people, their first home is not their "forever" home. For a home that you will sell in the not-too-distant future, I see little point in paying more (even understanding that you will build equity faster) because you'll still be saddled with mortgage payments on the replacement house. And younger people are typically less tied to a job/location. That's not the case for those in their 40s an beyond.
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Re: 15 year or 30 year mortgage?

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willthrill81 wrote: Tue Jul 07, 2020 9:13 pm Second, many people say that they will pay off a 30 year mortgage in far less time but wind up spending the difference instead. It's hard to make 180 'right' decisions in a row.
I don't know about "many," is there really data available on that?

Also it only needs to be one right decision: start an auto-debit for the additional principal payment.
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Re: 15 year or 30 year mortgage?

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nps wrote: Wed Jul 08, 2020 5:53 am
willthrill81 wrote: Tue Jul 07, 2020 9:13 pm Second, many people say that they will pay off a 30 year mortgage in far less time but wind up spending the difference instead. It's hard to make 180 'right' decisions in a row.
I don't know about "many," is there really data available on that?

Also it only needs to be one right decision: start an auto-debit for the additional principal payment.
It's conjecture on my part combined with limited anecdotal evidence. But I strongly suspect it to be true.

Yes, auto-debit works if people actually start it.
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Re: 15 year or 30 year mortgage?

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willthrill81 wrote: Wed Jul 08, 2020 10:26 am
nps wrote: Wed Jul 08, 2020 5:53 am
willthrill81 wrote: Tue Jul 07, 2020 9:13 pm Second, many people say that they will pay off a 30 year mortgage in far less time but wind up spending the difference instead. It's hard to make 180 'right' decisions in a row.
I don't know about "many," is there really data available on that?

Also it only needs to be one right decision: start an auto-debit for the additional principal payment.
It's conjecture on my part combined with limited anecdotal evidence. But I strongly suspect it to be true.

Yes, auto-debit works if people actually start it.
Its certainly true in my case. I consider myself to be a pretty disciplined investor, but even so, suspended extra auto payments on the 30 for occasional splurges, etc. that weren't really necessary. On the 15 year, I made every payment, every time. And, with the extra payments on that plan, paid it off in 9 years.
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Re: 15 year or 30 year mortgage?

Post by Maverick3320 »

batpot wrote: Mon Jul 06, 2020 4:37 pm
Triple digit golfer wrote: Mon Jul 06, 2020 3:29 pm
ddurrett896 wrote: Mon Jul 06, 2020 3:13 pm I'd do 30 if you're anywhere near being tight on 15.
Absolutely.
+2

Often, a 15 year makes no sense.
A recent example from another thread:
3% 30 year vs a 2.65% 15 year.
15 year costs $674/mo per $100k.
30 year costs $422/mo per $100k.

If you pay $674/mo per $100k on the 30 year loan, you'll have paid the loan down in 15 year, 6 months.
Only a 6 month penalty, and you can relax your monthly payment $252 per $100k if a month gets tight.
Lots of online calculators will compute pay off period with extra payments, and google's home page will tell you the baseline.
But if they can afford the 674/month every month for 30 years...why not just do the 15 year payment?
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Re: 15 year or 30 year mortgage?

Post by sterlingcooper05 »

I assume you're avoiding PMI with enough equity. 15 year is a better long term solution. While the 30 year will provide payment flexibility, it is much harder to "pay it like a 15" as people are suggesting. The 30 year also increases purchase price for a lot of people.
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Re: 15 year or 30 year mortgage?

Post by kmok »

Maverick3320 wrote: Wed Jul 08, 2020 1:11 pm
batpot wrote: Mon Jul 06, 2020 4:37 pm
Triple digit golfer wrote: Mon Jul 06, 2020 3:29 pm
ddurrett896 wrote: Mon Jul 06, 2020 3:13 pm I'd do 30 if you're anywhere near being tight on 15.
Absolutely.
+2

Often, a 15 year makes no sense.
A recent example from another thread:
3% 30 year vs a 2.65% 15 year.
15 year costs $674/mo per $100k.
30 year costs $422/mo per $100k.

If you pay $674/mo per $100k on the 30 year loan, you'll have paid the loan down in 15 year, 6 months.
Only a 6 month penalty, and you can relax your monthly payment $252 per $100k if a month gets tight.
Lots of online calculators will compute pay off period with extra payments, and google's home page will tell you the baseline.
But if they can afford the 674/month every month for 30 years...why not just do the 15 year payment?
Exactly. 6 month penalty may be lower than some people's expectation, but it is also a pretty significant amount, depends on how you look at it.
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Re: 15 year or 30 year mortgage?

Post by tomwood »

onthecusp wrote: Tue Jul 07, 2020 10:25 pm
tomwood wrote: Mon Jul 06, 2020 6:11 pm
onthecusp wrote: Mon Jul 06, 2020 3:24 pm If your career is likely to include pretty regular pay increases then I would stretch for the 15 year like we have the last 4 houses we bought.
This is the case for my job.

If we try 15 and it’s just keeping us too thin as years go by, is it a difficult or wasteful process to ReFi to a 30 year?
As much as I like to encourage 15 yr mortgages because it has worked well for us, it may not be right for you. If you are really just too close to the edge because of local housing prices/wanting to be in a particular area etc. there is nothing wrong with a 30. I think it could well be a bit wasteful to start one way then change.

When rates are going down, you can do a "no cash" refi and get a lower rate just not as low as if you paid for the one time expenses of making a loan. So it starts to look like refi's are free. But of course they are not; the right move when rates are down, but not free. If you refi in a time of flat rates you are either going to switch up to a higher rate or pay hundreds maybe a thousand in closing costs cash or added to the loan. That would negate a whole lot of .25% savings.
Thanks for explaining those details
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Re: 15 year or 30 year mortgage?

Post by Admiral »

tomwood wrote: Thu Jul 09, 2020 7:49 am
onthecusp wrote: Tue Jul 07, 2020 10:25 pm
tomwood wrote: Mon Jul 06, 2020 6:11 pm
onthecusp wrote: Mon Jul 06, 2020 3:24 pm If your career is likely to include pretty regular pay increases then I would stretch for the 15 year like we have the last 4 houses we bought.
This is the case for my job.

If we try 15 and it’s just keeping us too thin as years go by, is it a difficult or wasteful process to ReFi to a 30 year?
As much as I like to encourage 15 yr mortgages because it has worked well for us, it may not be right for you. If you are really just too close to the edge because of local housing prices/wanting to be in a particular area etc. there is nothing wrong with a 30. I think it could well be a bit wasteful to start one way then change.

When rates are going down, you can do a "no cash" refi and get a lower rate just not as low as if you paid for the one time expenses of making a loan. So it starts to look like refi's are free. But of course they are not; the right move when rates are down, but not free. If you refi in a time of flat rates you are either going to switch up to a higher rate or pay hundreds maybe a thousand in closing costs cash or added to the loan. That would negate a whole lot of .25% savings.
Thanks for explaining those details
The thing you want to avoid is constant refis because they simply extend the payback period indefinitely. Which also increases interest because loans are front-loaded with interest based on the amortization table. Going from a 30 to a 15 after 5 years is not the same as going from a 15 to a 30 after five years.

I hate hearing/reading about people who are 75 and have been in the same house for 40 years but still owe money because they kept extending the mortgage (and/or pulling money out).
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Re: 15 year or 30 year mortgage?

Post by BrandonBogle »

Admiral wrote: Thu Jul 09, 2020 7:56 am The thing you want to avoid is constant refis because they simply extend the payback period indefinitely. Which also increases interest because loans are front-loaded with interest based on the amortization table. Going from a 30 to a 15 after 5 years is not the same as going from a 15 to a 30 after five years.

I hate hearing/reading about people who are 75 and have been in the same house for 40 years but still owe money because they kept extending the mortgage (and/or pulling money out).
The emphasized text is incorrect. The interest is accrued monthly (unless early payoff, where a daily accrual is considered) on the outstanding principal balance. Term makes zero difference in the interest charged, assuming the rate is the same between the terms being compared. Nothing is “front-loaded”.

What generally increases interest paid (sometimes even more than had the refi not been done) is extending the term vs. paying the refi on the original term schedule (or payment). With paying the new minimum payment on the refi, the borrower(s) are paying less in principal than if they used the higher payment amount to maintain effective term.
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Re: 15 year or 30 year mortgage?

Post by Admiral »

BrandonBogle wrote: Thu Jul 09, 2020 10:41 am
Admiral wrote: Thu Jul 09, 2020 7:56 am The thing you want to avoid is constant refis because they simply extend the payback period indefinitely. Which also increases interest because loans are front-loaded with interest based on the amortization table. Going from a 30 to a 15 after 5 years is not the same as going from a 15 to a 30 after five years.

I hate hearing/reading about people who are 75 and have been in the same house for 40 years but still owe money because they kept extending the mortgage (and/or pulling money out).
The emphasized text is incorrect. The interest is accrued monthly (unless early payoff, where a daily accrual is considered) on the outstanding principal balance. Term makes zero difference in the interest charged, assuming the rate is the same between the terms being compared. Nothing is “front-loaded”.

What generally increases interest paid (sometimes even more than had the refi not been done) is extending the term vs. paying the refi on the original term schedule (or payment). With paying the new minimum payment on the refi, the borrower(s) are paying less in principal than if they used the higher payment amount to maintain effective term.
It is not incorrect since by "front loaded' I mean that the interest is greater as a ratio to the principal because the loan balance is higher. That's the effect of amortization.
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Re: 15 year or 30 year mortgage?

Post by MortgageOnBlack »

Having just bought in 10/2016, we refinanced down to a 15 year this past May. I believe we will be thanking ourselves in 10-15 years.
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Re: 15 year or 30 year mortgage?

Post by BrandonBogle »

Admiral wrote: Thu Jul 09, 2020 10:47 am It is not incorrect since by "front loaded' I mean that the interest is greater as a ratio to the principal because the loan balance is higher. That's the effect of amortization.
We will have to agree to disagree.

Doing such a ratio implies the minimum payment, my comment above. When I do a refi, I make my own amortization table to keep the term the same. Interest is NOT a greater percentage of principal than before on my amortization schedule. Thus, it isn’t the amoritization “front-loading” by your definition, it is the borrow’s choice of minimum payment that does it.
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Re: 15 year or 30 year mortgage?

Post by willthrill81 »

Admiral wrote: Thu Jul 09, 2020 7:56 am I hate hearing/reading about people who are 75 and have been in the same house for 40 years but still owe money because they kept extending the mortgage (and/or pulling money out).
I agree. It's a mathematical fact that apart from some unusual circumstances (i.e. after-tax bond yields are higher than your after-tax mortgage rate, along with others), retaining a mortgage in retirement increases one's sequence of returns risk because it represents a fixed obligation that must be satisfied every month, regardless of portfolio performance.
Admiral wrote: Thu Jul 09, 2020 10:47 am
BrandonBogle wrote: Thu Jul 09, 2020 10:41 am
Admiral wrote: Thu Jul 09, 2020 7:56 am The thing you want to avoid is constant refis because they simply extend the payback period indefinitely. Which also increases interest because loans are front-loaded with interest based on the amortization table. Going from a 30 to a 15 after 5 years is not the same as going from a 15 to a 30 after five years.

I hate hearing/reading about people who are 75 and have been in the same house for 40 years but still owe money because they kept extending the mortgage (and/or pulling money out).
The emphasized text is incorrect. The interest is accrued monthly (unless early payoff, where a daily accrual is considered) on the outstanding principal balance. Term makes zero difference in the interest charged, assuming the rate is the same between the terms being compared. Nothing is “front-loaded”.

What generally increases interest paid (sometimes even more than had the refi not been done) is extending the term vs. paying the refi on the original term schedule (or payment). With paying the new minimum payment on the refi, the borrower(s) are paying less in principal than if they used the higher payment amount to maintain effective term.
It is not incorrect since by "front loaded' I mean that the interest is greater as a ratio to the principal because the loan balance is higher. That's the effect of amortization.
Whatever terminology we used to describe it, it's certainly true that at current mortgage rates (i.e. around 3.25% for 30 year mortgages), the balance on a 30 year mortgage after 10 years of payments will be almost 77% of the starting balance. It's just the way that the math works. So if you're refinancing every few years and only making required principal & interest payments, you're never making much headway with paying down the mortgage, at least in nominal dollars.
BrandonBogle wrote: Thu Jul 09, 2020 10:58 am
Admiral wrote: Thu Jul 09, 2020 10:47 am It is not incorrect since by "front loaded' I mean that the interest is greater as a ratio to the principal because the loan balance is higher. That's the effect of amortization.
We will have to agree to disagree.

Doing such a ratio implies the minimum payment, my comment above. When I do a refi, I make my own amortization table to keep the term the same. Interest is NOT a greater percentage of principal than before on my amortization schedule. Thus, it isn’t the amoritization “front-loading” by your definition, it is the borrow’s choice of minimum payment that does it.
Certain refinancing is not the real source of the 'problem'. But the strong tendency for many is to rarely, if ever, pay more than the required principal and interest payment.
Last edited by willthrill81 on Thu Jul 09, 2020 11:04 am, edited 1 time in total.
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Re: 15 year or 30 year mortgage?

Post by CycloRista »

MathWizard wrote: Tue Jul 07, 2020 2:01 pm If you are close on the 15 year, have you check on a 20 year mortgage?

Given the low rates, a 30 year is not a bad way to go. It gives you cash flow options.
I wouldn't pay ahead until you can pay off the mortgage.

I paid off my mortgage early, but I started with a 7% 30 year fixed.
Congrats. My first 30 year fixed was just under 8% which I refi'd down after a few years (and eventually sold that house for nearly double what I paid for it). Still paying on a 20-year mortgage that is quite manageable at this point. So long as I continue being eligible for the mortgage interest tax deduction, I'm going to hang onto it.

A former colleague of mine bought his first home in 1982 when the rates were more than 16%!
arsenalfan
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Re: 15 year or 30 year mortgage?

Post by arsenalfan »

OP sounds like you're in the same boat I was previously in, back in 2012.
I did 30 year 3.35% when I wanted surplus cash for contingencies (other investments, kids private school, taking care of parents).
8 years later, some of that surplus cash was used to pay down mortgage principal. Things are ok.
Just refinanced to 15 year 2.75% - same monthly payments, but 150k less interest, and shaving 7 years off life of loan.
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Re: 15 year or 30 year mortgage?

Post by Ron Ronnerson »

willthrill81 wrote: Thu Jul 09, 2020 11:01 am
Whatever terminology we used to describe it, it's certainly true that at current mortgage rates (i.e. around 3.25% for 30 year mortgages), the balance on a 30 year mortgage after 10 years of payments will be almost 77% of the starting balance. It's just the way that the math works. So if you're refinancing every few years and only making required principal & interest payments, you're never making much headway with paying down the mortgage, at least in nominal dollars.
If the mortgage rate were 0.1% on a 30 year fixed, 97% of the very first payment would go toward principal. However, after 10 years, the mortgage would only be 33% paid off. The reason for this is that there is a lower payment due each month compared to the 15-year and not so much that the interest rate is much of a factor. If a 0.1% rate were available on a 30-year, I bet many people would sign up for it even though they would still owe a lot of money after 10 years.

Still, I think either a 15- or 30-year can be a fine choice. I closed yesterday on a refinance for a 30-year fixed at 2.875%. I think the odds are good that this debt will end up making me money in real dollars in the long run. Not everyone wants to take a chance like that and there is certainly much to be said for lowering your expenses. Also, I can appreciate the peace of mind that comes with not having debt. For those who prefer a 15-year, I get it.

However, whether it is the optimal move in terms of the math remains to be seen. If banks are paying the same rate 15 years in the future that they were paying 15 years in the past (6% or so), having a 2.x% mortgage might not feel so bad. Personally, I would love the peace of mind of not having a mortgage payment but I like the idea of making money off a loan someone gives me even more. I am hoping to refinance again to another 30-year if rates come down 0.25% or more.

For me, anything under 3% is so low that I am willing to take a loan on that amount over the long term. For others, the cut off may be lower. However, there are some people so opposed to debt that they wouldn't borrow money even if the rate were negative. My main reason to get another 30-year loan is that we've reached a point where I'm betting that the real rate on my mortgage over 30 years is reasonably likely to be negative. The historical rate of inflation is over 3%. I can invest the difference in mortgage payments between a 15-year and 30-year mortgage and earn nothing on it over 30 years and still come out making money by having this debt as long as future inflation is more or less in line with inflation in the past. There are reasons to think inflation might actually be much higher in the future but I won't get into that.

Part of my consideration includes personal factors. I'm in the 12% tax bracket and mortgage interest is fully deductible on my state taxes (my property taxes alone exceed the standard deduction). After 2025, when the current tax law reverts to what was in place previously, mortgage interest may be fully deductible on federal taxes too. I am expecting a pension as well so income stability is better than for some and that is part of my consideration also.
BackOfTheNet
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Re: 15 year or 30 year mortgage?

Post by BackOfTheNet »

Paying a 30 like a 15 still costs money. Just have to decide if it's worth it to you for the flexibility. For example with a 3.25% 30 vs 2.75% 15:

Interest due monthly =

((.0325 - .0275) / 12) x $BALANCE

((.0325 - .0275) / 12) x $100,000 = $41
((.0325 - .0275) / 12) x $500,000 = $208

Is that flexibility worth $208 every month (will go down as balance decreases) on a $500,000 loan?
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tomwood
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Re: 15 year or 30 year mortgage?

Post by tomwood »

Ron Ronnerson wrote: Thu Jul 09, 2020 11:59 am
willthrill81 wrote: Thu Jul 09, 2020 11:01 am
Whatever terminology we used to describe it, it's certainly true that at current mortgage rates (i.e. around 3.25% for 30 year mortgages), the balance on a 30 year mortgage after 10 years of payments will be almost 77% of the starting balance. It's just the way that the math works. So if you're refinancing every few years and only making required principal & interest payments, you're never making much headway with paying down the mortgage, at least in nominal dollars.
If the mortgage rate were 0.1% on a 30 year fixed, 97% of the very first payment would go toward principal. However, after 10 years, the mortgage would only be 33% paid off. The reason for this is that there is a lower payment due each month compared to the 15-year and not so much that the interest rate is much of a factor. If a 0.1% rate were available on a 30-year, I bet many people would sign up for it even though they would still owe a lot of money after 10 years.

Still, I think either a 15- or 30-year can be a fine choice. I closed yesterday on a refinance for a 30-year fixed at 2.875%. I think the odds are good that this debt will end up making me money in real dollars in the long run. Not everyone wants to take a chance like that and there is certainly much to be said for lowering your expenses. Also, I can appreciate the peace of mind that comes with not having debt. For those who prefer a 15-year, I get it.

However, whether it is the optimal move in terms of the math remains to be seen. If banks are paying the same rate 15 years in the future that they were paying 15 years in the past (6% or so), having a 2.x% mortgage might not feel so bad. Personally, I would love the peace of mind of not having a mortgage payment but I like the idea of making money off a loan someone gives me even more. I am hoping to refinance again to another 30-year if rates come down 0.25% or more.

For me, anything under 3% is so low that I am willing to take a loan on that amount over the long term. For others, the cut off may be lower. However, there are some people so opposed to debt that they wouldn't borrow money even if the rate were negative. My main reason to get another 30-year loan is that we've reached a point where I'm betting that the real rate on my mortgage over 30 years is reasonably likely to be negative. The historical rate of inflation is over 3%. I can invest the difference in mortgage payments between a 15-year and 30-year mortgage and earn nothing on it over 30 years and still come out making money by having this debt as long as future inflation is more or less in line with inflation in the past. There are reasons to think inflation might actually be much higher in the future but I won't get into that.

Part of my consideration includes personal factors. I'm in the 12% tax bracket and mortgage interest is fully deductible on my state taxes (my property taxes alone exceed the standard deduction). After 2025, when the current tax law reverts to what was in place previously, mortgage interest may be fully deductible on federal taxes too. I am expecting a pension as well so income stability is better than for some and that is part of my consideration also.
This lengthy reply was helpful and answered a lot of questions I had. To clarify your comments, with a sub 3% rate for 30 years, you’re not paying this down any quicker, is that right?
May I ask how many years you are away from retirement?
I will be receiving a partial, not full pension. Would you factor that into your decision if you were in my shoes?
Admiral
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Re: 15 year or 30 year mortgage?

Post by Admiral »

tomwood wrote: Thu Jul 09, 2020 1:25 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 11:59 am
willthrill81 wrote: Thu Jul 09, 2020 11:01 am
Whatever terminology we used to describe it, it's certainly true that at current mortgage rates (i.e. around 3.25% for 30 year mortgages), the balance on a 30 year mortgage after 10 years of payments will be almost 77% of the starting balance. It's just the way that the math works. So if you're refinancing every few years and only making required principal & interest payments, you're never making much headway with paying down the mortgage, at least in nominal dollars.
If the mortgage rate were 0.1% on a 30 year fixed, 97% of the very first payment would go toward principal. However, after 10 years, the mortgage would only be 33% paid off. The reason for this is that there is a lower payment due each month compared to the 15-year and not so much that the interest rate is much of a factor. If a 0.1% rate were available on a 30-year, I bet many people would sign up for it even though they would still owe a lot of money after 10 years.

Still, I think either a 15- or 30-year can be a fine choice. I closed yesterday on a refinance for a 30-year fixed at 2.875%. I think the odds are good that this debt will end up making me money in real dollars in the long run. Not everyone wants to take a chance like that and there is certainly much to be said for lowering your expenses. Also, I can appreciate the peace of mind that comes with not having debt. For those who prefer a 15-year, I get it.

However, whether it is the optimal move in terms of the math remains to be seen. If banks are paying the same rate 15 years in the future that they were paying 15 years in the past (6% or so), having a 2.x% mortgage might not feel so bad. Personally, I would love the peace of mind of not having a mortgage payment but I like the idea of making money off a loan someone gives me even more. I am hoping to refinance again to another 30-year if rates come down 0.25% or more.

For me, anything under 3% is so low that I am willing to take a loan on that amount over the long term. For others, the cut off may be lower. However, there are some people so opposed to debt that they wouldn't borrow money even if the rate were negative. My main reason to get another 30-year loan is that we've reached a point where I'm betting that the real rate on my mortgage over 30 years is reasonably likely to be negative. The historical rate of inflation is over 3%. I can invest the difference in mortgage payments between a 15-year and 30-year mortgage and earn nothing on it over 30 years and still come out making money by having this debt as long as future inflation is more or less in line with inflation in the past. There are reasons to think inflation might actually be much higher in the future but I won't get into that.

Part of my consideration includes personal factors. I'm in the 12% tax bracket and mortgage interest is fully deductible on my state taxes (my property taxes alone exceed the standard deduction). After 2025, when the current tax law reverts to what was in place previously, mortgage interest may be fully deductible on federal taxes too. I am expecting a pension as well so income stability is better than for some and that is part of my consideration also.
This lengthy reply was helpful and answered a lot of questions I had. To clarify your comments, with a sub 3% rate for 30 years, you’re not paying this down any quicker, is that right?
May I ask how many years you are away from retirement?
I will be receiving a partial, not full pension. Would you factor that into your decision if you were in my shoes?
A pension is simply an income stream, and a mortgage is simply an expense. Neither exist in isolation. You'd need to project your retirement income and expenses to see how one would impact the other. If your retirement income is 70k per year and your expenses are 40k per year, then having a mortgage makes zero difference. But if like most people you will need to draw from investments to cover your retirement expense needs, then having a mortgage will impact your withdrawal rate (which itself will impact the taxes you pay).

I recommend you look at Flexible Retirement Planner or Retiree Portfolio Model to see what difference having a mortgage in retirement might make to your investment choices and needs, versus paying more now on a shorter mortgage to have it gone by then.
Last edited by Admiral on Thu Jul 09, 2020 2:19 pm, edited 1 time in total.
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Re: 15 year or 30 year mortgage?

Post by abuss368 »

tomwood wrote: Mon Jul 06, 2020 2:50 pm The 15 year would be tight for our monthly budget but we could make it work if it was a better situation for our family. What would most BH’s suggest between 15 or 30 year fixed new home mortgage? Current rates are just around or over 3% for the 30 year and just over 2.5% for the 15 year. With rates this low is it logical to take the 30 year even if we’d qualify for the 15 year? Or is there noticeable advantages to the 15 year regardless of current rates? I’m about 25 years away from retirement, though might work 30.
I would prefer the additional flexibility of a 30 year mortgage. Pay additional principal down to pay off earlier. If cash flows are tight or an emergency happens, you can pay the minimum amount.
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Re: 15 year or 30 year mortgage?

Post by Ron Ronnerson »

tomwood wrote: Thu Jul 09, 2020 1:25 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 11:59 am
willthrill81 wrote: Thu Jul 09, 2020 11:01 am
Whatever terminology we used to describe it, it's certainly true that at current mortgage rates (i.e. around 3.25% for 30 year mortgages), the balance on a 30 year mortgage after 10 years of payments will be almost 77% of the starting balance. It's just the way that the math works. So if you're refinancing every few years and only making required principal & interest payments, you're never making much headway with paying down the mortgage, at least in nominal dollars.
If the mortgage rate were 0.1% on a 30 year fixed, 97% of the very first payment would go toward principal. However, after 10 years, the mortgage would only be 33% paid off. The reason for this is that there is a lower payment due each month compared to the 15-year and not so much that the interest rate is much of a factor. If a 0.1% rate were available on a 30-year, I bet many people would sign up for it even though they would still owe a lot of money after 10 years.

Still, I think either a 15- or 30-year can be a fine choice. I closed yesterday on a refinance for a 30-year fixed at 2.875%. I think the odds are good that this debt will end up making me money in real dollars in the long run. Not everyone wants to take a chance like that and there is certainly much to be said for lowering your expenses. Also, I can appreciate the peace of mind that comes with not having debt. For those who prefer a 15-year, I get it.

However, whether it is the optimal move in terms of the math remains to be seen. If banks are paying the same rate 15 years in the future that they were paying 15 years in the past (6% or so), having a 2.x% mortgage might not feel so bad. Personally, I would love the peace of mind of not having a mortgage payment but I like the idea of making money off a loan someone gives me even more. I am hoping to refinance again to another 30-year if rates come down 0.25% or more.

For me, anything under 3% is so low that I am willing to take a loan on that amount over the long term. For others, the cut off may be lower. However, there are some people so opposed to debt that they wouldn't borrow money even if the rate were negative. My main reason to get another 30-year loan is that we've reached a point where I'm betting that the real rate on my mortgage over 30 years is reasonably likely to be negative. The historical rate of inflation is over 3%. I can invest the difference in mortgage payments between a 15-year and 30-year mortgage and earn nothing on it over 30 years and still come out making money by having this debt as long as future inflation is more or less in line with inflation in the past. There are reasons to think inflation might actually be much higher in the future but I won't get into that.

Part of my consideration includes personal factors. I'm in the 12% tax bracket and mortgage interest is fully deductible on my state taxes (my property taxes alone exceed the standard deduction). After 2025, when the current tax law reverts to what was in place previously, mortgage interest may be fully deductible on federal taxes too. I am expecting a pension as well so income stability is better than for some and that is part of my consideration also.
This lengthy reply was helpful and answered a lot of questions I had. To clarify your comments, with a sub 3% rate for 30 years, you’re not paying this down any quicker, is that right?
May I ask how many years you are away from retirement?
I will be receiving a partial, not full pension. Would you factor that into your decision if you were in my shoes?
Yes, that is correct, I am not planning to pay down the loan any quicker. I am about 16 years from retirement (currently age 45 and plan to stop working around age 61). A pension did factor into my decision. It is basically as if a portion of your paycheck keeps coming forever. In the meantime, inflation works like sandpaper on your mortgage payment. So, in effect, your mortgage payment goes down over time.

In my decision, I definitely considered personal factors as well as the fact that I'm locking in a sub-3% rate. Even if the growth on my investments is lackluster over the next three decades, I'd be surprised if I don't do better than my mortgage rate of 2.875% (which is actually even lower after itemizing on taxes). My loan is for $348k and my mortgage payment will be $1444/month. Over time, inflation will make my paychecks get bigger and bigger relative to the fixed mortgage payment (effectively, making the mortgage payment go down lower and lower over the years).

Once I retire, we will have social security and pension income coming in and begin drawing from retirement accounts that will have hopefully grown nicely over many years. Having a payment of $1444 per month many years from now will likely not be a big deal (after accounting for inflation, it might seem like carrying a mortgage half the size that it does today). Without the additional income stream from the pension, I may be more inclined to pay off the mortgage at least a bit faster by throwing in a little extra toward principal each month. That being said, even though I may be more inclined to do that, rates are low enough at this point that I just don't know if I could go through with it. I honestly expect to make money off this loan.
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Re: 15 year or 30 year mortgage?

Post by runswithscissors »

Anything less than or equal to a 0.5% rate delta just isn't worth the risk regardless of how secure you are.
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Re: 15 year or 30 year mortgage?

Post by scubadiver »

Ron Ronnerson wrote: Thu Jul 09, 2020 3:12 pm Yes, that is correct, I am not planning to pay down the loan any quicker. I am about 16 years from retirement (currently age 45 and plan to stop working around age 61). A pension did factor into my decision. It is basically as if a portion of your paycheck keeps coming forever. In the meantime, inflation works like sandpaper on your mortgage payment. So, in effect, your mortgage payment goes down over time.

In my decision, I definitely considered personal factors as well as the fact that I'm locking in a sub-3% rate. Even if the growth on my investments is lackluster over the next three decades, I'd be surprised if I don't do better than my mortgage rate of 2.875% (which is actually even lower after itemizing on taxes). My loan is for $348k and my mortgage payment will be $1444/month. Over time, inflation will make my paychecks get bigger and bigger relative to the fixed mortgage payment (effectively, making the mortgage payment go down lower and lower over the years).

Once I retire, we will have social security and pension income coming in and begin drawing from retirement accounts that will have hopefully grown nicely over many years. Having a payment of $1444 per month many years from now will likely not be a big deal (after accounting for inflation, it might seem like carrying a mortgage half the size that it does today). Without the additional income stream from the pension, I may be more inclined to pay off the mortgage at least a bit faster by throwing in a little extra toward principal each month. That being said, even though I may be more inclined to do that, rates are low enough at this point that I just don't know if I could go through with it. I honestly expect to make money off this loan.
I'm basically doing what you are doing (or at least what I understood you to be doing). That is, timing my mortgage payoff to more or less coincide with my retirement. And the money I'm not putting on my mortgage is going into investments, not lifestyle, which is important.

Here's the rub. Yes, inflation does eat away at the financial pinch of a mortgage payment. But that same 80 grit sandpaper does a number on the money you have been investing over the years too, so I'm not sure this is a free lunch.
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Re: 15 year or 30 year mortgage?

Post by Ron Ronnerson »

scubadiver wrote: Thu Jul 09, 2020 3:21 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 3:12 pm Yes, that is correct, I am not planning to pay down the loan any quicker. I am about 16 years from retirement (currently age 45 and plan to stop working around age 61). A pension did factor into my decision. It is basically as if a portion of your paycheck keeps coming forever. In the meantime, inflation works like sandpaper on your mortgage payment. So, in effect, your mortgage payment goes down over time.

In my decision, I definitely considered personal factors as well as the fact that I'm locking in a sub-3% rate. Even if the growth on my investments is lackluster over the next three decades, I'd be surprised if I don't do better than my mortgage rate of 2.875% (which is actually even lower after itemizing on taxes). My loan is for $348k and my mortgage payment will be $1444/month. Over time, inflation will make my paychecks get bigger and bigger relative to the fixed mortgage payment (effectively, making the mortgage payment go down lower and lower over the years).

Once I retire, we will have social security and pension income coming in and begin drawing from retirement accounts that will have hopefully grown nicely over many years. Having a payment of $1444 per month many years from now will likely not be a big deal (after accounting for inflation, it might seem like carrying a mortgage half the size that it does today). Without the additional income stream from the pension, I may be more inclined to pay off the mortgage at least a bit faster by throwing in a little extra toward principal each month. That being said, even though I may be more inclined to do that, rates are low enough at this point that I just don't know if I could go through with it. I honestly expect to make money off this loan.
I'm basically doing what you are doing (or at least what I understood you to be doing). That is, timing my mortgage payoff to more or less coincide with my retirement. And the money I'm not putting on my mortgage is going into investments, not lifestyle, which is important.

Here's the rub. Yes, inflation does eat away at the financial pinch of a mortgage payment. But that same 80 grit sandpaper does a number on the money you have been investing over the years too, so I'm not sure this is a free lunch.
Actually, my mortgage would be paid off at age 75 while I'm planning to retire around age 60 or 61. My mortgage payment will stay at $1444 per month going forward for the next 30 years. However, over the years, I should get raises that (hopefully) keep up with inflation. So, my income will grow but the mortgage payment won't. Then, once I retire, we'll get social security and a pension, both of which have annual cost-of-living adjustments. This means that, in effect, the mortgage payments shrink over time. I also expect investment returns to be greater than my mortgage rate over 30 years. This, of course, is not guaranteed. However, I think it is safe to say that most here would be surprised if that does not turn out to be the case.
scubadiver
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Re: 15 year or 30 year mortgage?

Post by scubadiver »

Ron Ronnerson wrote: Thu Jul 09, 2020 4:05 pm
scubadiver wrote: Thu Jul 09, 2020 3:21 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 3:12 pm Yes, that is correct, I am not planning to pay down the loan any quicker. I am about 16 years from retirement (currently age 45 and plan to stop working around age 61). A pension did factor into my decision. It is basically as if a portion of your paycheck keeps coming forever. In the meantime, inflation works like sandpaper on your mortgage payment. So, in effect, your mortgage payment goes down over time.

In my decision, I definitely considered personal factors as well as the fact that I'm locking in a sub-3% rate. Even if the growth on my investments is lackluster over the next three decades, I'd be surprised if I don't do better than my mortgage rate of 2.875% (which is actually even lower after itemizing on taxes). My loan is for $348k and my mortgage payment will be $1444/month. Over time, inflation will make my paychecks get bigger and bigger relative to the fixed mortgage payment (effectively, making the mortgage payment go down lower and lower over the years).

Once I retire, we will have social security and pension income coming in and begin drawing from retirement accounts that will have hopefully grown nicely over many years. Having a payment of $1444 per month many years from now will likely not be a big deal (after accounting for inflation, it might seem like carrying a mortgage half the size that it does today). Without the additional income stream from the pension, I may be more inclined to pay off the mortgage at least a bit faster by throwing in a little extra toward principal each month. That being said, even though I may be more inclined to do that, rates are low enough at this point that I just don't know if I could go through with it. I honestly expect to make money off this loan.
I'm basically doing what you are doing (or at least what I understood you to be doing). That is, timing my mortgage payoff to more or less coincide with my retirement. And the money I'm not putting on my mortgage is going into investments, not lifestyle, which is important.

Here's the rub. Yes, inflation does eat away at the financial pinch of a mortgage payment. But that same 80 grit sandpaper does a number on the money you have been investing over the years too, so I'm not sure this is a free lunch.
Actually, my mortgage would be paid off at age 75 while I'm planning to retire around age 60 or 61. My mortgage payment will stay at $1444 per month going forward for the next 30 years. However, over the years, I should get raises that (hopefully) keep up with inflation. So, my income will grow but the mortgage payment won't. Then, once I retire, we'll get social security and a pension, both of which have annual cost-of-living adjustments. This means that, in effect, the mortgage payments shrink over time. I also expect investment returns to be greater than my mortgage rate over 30 years. This, of course, is not guaranteed. However, I think it is safe to say that most here would be surprised if that does not turn out to be the case.
I'm not criticizing your plan. It's a fine plan for your circumstances.

I'm taking issue with the "mortgage payments shrinking over time" rationale. My experience has been that others who are less financially literate have a tendency to clamp onto this notion and run with it, ignoring the other considerations that you have made, and putting themselves at risk of a bad financial outcome.

And the shrinking mortgage payment is not the correct way to think about this. It's a red herring. I think a correct analysis looks at after-tax risk-adjusted returns and the portfolio risk impacts of holding a mortgage. Which to your credit you allude to. To the extent that I am taking issue with anything you are saying, it is only with the "mortgage payments shrinking over time" comment, which admittedly is a nit pick. :)
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Re: 15 year or 30 year mortgage?

Post by Ron Ronnerson »

scubadiver wrote: Thu Jul 09, 2020 4:36 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 4:05 pm
scubadiver wrote: Thu Jul 09, 2020 3:21 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 3:12 pm Yes, that is correct, I am not planning to pay down the loan any quicker. I am about 16 years from retirement (currently age 45 and plan to stop working around age 61). A pension did factor into my decision. It is basically as if a portion of your paycheck keeps coming forever. In the meantime, inflation works like sandpaper on your mortgage payment. So, in effect, your mortgage payment goes down over time.

In my decision, I definitely considered personal factors as well as the fact that I'm locking in a sub-3% rate. Even if the growth on my investments is lackluster over the next three decades, I'd be surprised if I don't do better than my mortgage rate of 2.875% (which is actually even lower after itemizing on taxes). My loan is for $348k and my mortgage payment will be $1444/month. Over time, inflation will make my paychecks get bigger and bigger relative to the fixed mortgage payment (effectively, making the mortgage payment go down lower and lower over the years).

Once I retire, we will have social security and pension income coming in and begin drawing from retirement accounts that will have hopefully grown nicely over many years. Having a payment of $1444 per month many years from now will likely not be a big deal (after accounting for inflation, it might seem like carrying a mortgage half the size that it does today). Without the additional income stream from the pension, I may be more inclined to pay off the mortgage at least a bit faster by throwing in a little extra toward principal each month. That being said, even though I may be more inclined to do that, rates are low enough at this point that I just don't know if I could go through with it. I honestly expect to make money off this loan.
I'm basically doing what you are doing (or at least what I understood you to be doing). That is, timing my mortgage payoff to more or less coincide with my retirement. And the money I'm not putting on my mortgage is going into investments, not lifestyle, which is important.

Here's the rub. Yes, inflation does eat away at the financial pinch of a mortgage payment. But that same 80 grit sandpaper does a number on the money you have been investing over the years too, so I'm not sure this is a free lunch.
Actually, my mortgage would be paid off at age 75 while I'm planning to retire around age 60 or 61. My mortgage payment will stay at $1444 per month going forward for the next 30 years. However, over the years, I should get raises that (hopefully) keep up with inflation. So, my income will grow but the mortgage payment won't. Then, once I retire, we'll get social security and a pension, both of which have annual cost-of-living adjustments. This means that, in effect, the mortgage payments shrink over time. I also expect investment returns to be greater than my mortgage rate over 30 years. This, of course, is not guaranteed. However, I think it is safe to say that most here would be surprised if that does not turn out to be the case.
Again, I'm not criticizing your plan. It's a fine plan for your circumstances.

I'm taking issue with the mortgage payments "shrinking over time" rationale. My experience has been that others who are less financially literate have a tendency to clamp onto this notion and run with it, ignoring the other considerations that you have made, and putting themselves at risk of a bad financial outcome. That's all.
No worries as I didn't take it as criticism. I was just clarifying that I would have a mortgage into retirement if I stay on the current path. I totally agree that everyone needs to look at their own situation and decide the best way forward for themselves. I think that many people would do well to have no mortgage sooner rather than later.

I do, however, think that fixed rate mortgage payments tend to, in effect, shrink over time (unless there is deflation). The cumulative rate of inflation over the past 30 years, during a period in which inflation has been relatively low, is close to 100%. To keep up with rising costs over time, people get raises and cost-of-living adjustment and invest (which is done at least in part to counter the effects of inflation). One way to think of it is that the mortgage stays the same but paychecks get bigger over time. In relation to one another, the mortgage appears to shrink.
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Re: 15 year or 30 year mortgage?

Post by scubadiver »

Ron Ronnerson wrote: Thu Jul 09, 2020 5:04 pm
scubadiver wrote: Thu Jul 09, 2020 4:36 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 4:05 pm
scubadiver wrote: Thu Jul 09, 2020 3:21 pm
Ron Ronnerson wrote: Thu Jul 09, 2020 3:12 pm Yes, that is correct, I am not planning to pay down the loan any quicker. I am about 16 years from retirement (currently age 45 and plan to stop working around age 61). A pension did factor into my decision. It is basically as if a portion of your paycheck keeps coming forever. In the meantime, inflation works like sandpaper on your mortgage payment. So, in effect, your mortgage payment goes down over time.

In my decision, I definitely considered personal factors as well as the fact that I'm locking in a sub-3% rate. Even if the growth on my investments is lackluster over the next three decades, I'd be surprised if I don't do better than my mortgage rate of 2.875% (which is actually even lower after itemizing on taxes). My loan is for $348k and my mortgage payment will be $1444/month. Over time, inflation will make my paychecks get bigger and bigger relative to the fixed mortgage payment (effectively, making the mortgage payment go down lower and lower over the years).

Once I retire, we will have social security and pension income coming in and begin drawing from retirement accounts that will have hopefully grown nicely over many years. Having a payment of $1444 per month many years from now will likely not be a big deal (after accounting for inflation, it might seem like carrying a mortgage half the size that it does today). Without the additional income stream from the pension, I may be more inclined to pay off the mortgage at least a bit faster by throwing in a little extra toward principal each month. That being said, even though I may be more inclined to do that, rates are low enough at this point that I just don't know if I could go through with it. I honestly expect to make money off this loan.
I'm basically doing what you are doing (or at least what I understood you to be doing). That is, timing my mortgage payoff to more or less coincide with my retirement. And the money I'm not putting on my mortgage is going into investments, not lifestyle, which is important.

Here's the rub. Yes, inflation does eat away at the financial pinch of a mortgage payment. But that same 80 grit sandpaper does a number on the money you have been investing over the years too, so I'm not sure this is a free lunch.
Actually, my mortgage would be paid off at age 75 while I'm planning to retire around age 60 or 61. My mortgage payment will stay at $1444 per month going forward for the next 30 years. However, over the years, I should get raises that (hopefully) keep up with inflation. So, my income will grow but the mortgage payment won't. Then, once I retire, we'll get social security and a pension, both of which have annual cost-of-living adjustments. This means that, in effect, the mortgage payments shrink over time. I also expect investment returns to be greater than my mortgage rate over 30 years. This, of course, is not guaranteed. However, I think it is safe to say that most here would be surprised if that does not turn out to be the case.
Again, I'm not criticizing your plan. It's a fine plan for your circumstances.

I'm taking issue with the mortgage payments "shrinking over time" rationale. My experience has been that others who are less financially literate have a tendency to clamp onto this notion and run with it, ignoring the other considerations that you have made, and putting themselves at risk of a bad financial outcome. That's all.
No worries as I didn't take it as criticism. I was just clarifying that I would have a mortgage into retirement if I stay on the current path. I totally agree that everyone needs to look at their own situation and decide the best way forward for themselves. I think that many people would do well to have no mortgage sooner rather than later.

I do, however, think that fixed rate mortgage payments tend to, in effect, shrink over time (unless there is deflation). The cumulative rate of inflation over the past 30 years, during a period in which inflation has been relatively low, is close to 100%. To keep up with rising costs over time, people get raises and cost-of-living adjustment and invest (which is done at least in part to counter the effects of inflation). One way to think of it is that the mortgage stays the same but paychecks get bigger over time. In relation to one another, the mortgage appears to shrink.
Fair enough.

And my own plan isn't that wildly different. Depending upon how aggressive we are in paying it, and how early I retire, we could have as much as 5 years left on our mortgage when I decide to stop working for pay. I'm already looking forward to starting the thread on whether or not I should sell a portion of our taxable portfolio to pay off the mortgage. :)
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Re: 15 year or 30 year mortgage?

Post by Dyloot »

willthrill81 wrote: Tue Jul 07, 2020 9:13 pm
nwa-non wrote: Tue Jul 07, 2020 8:59 pm For home buyers (to draw the distinction between home buyers and re-financers), especially first time home buyers, going for a 30-year mortgage makes most sense, most of the time. Then try to pay off as a 10- or 12-year loan.
There are two rubs with that plan. First, you're paying a higher interest rate for the 30 year vs. something like a 15 year. Paying off a 30 year in 15 vs. getting a 15 year means thousands of extra dollars paid in mortgage interest for every $100k borrowed. It can be a high price to pay for the ability to 'reduce' one's payments from the 15 year level to that of the 30 year. IMHO, many would be better served by having an appropriately sized emergency fund rather than paying a higher interest rate for many years; the effective rate of return on the additional funds needed to build a bigger emergency fund for this purpose can be ridiculously high.

Second, many people say that they will pay off a 30 year mortgage in far less time but wind up spending the difference instead. It's hard to make 180 'right' decisions in a row.
I agree with your second rub. It really depends on what you do with the money, and without a crystal ball nothing is certain.

Years ago I made your second rub argument in numerous "Trad vs. Roth" discussions here. If one takes the tax shelter now in a Trad investment vehicle, and uses the money saved to take a trip to HI, it may have been better for them to have spent extra on the Roth contribution in today's dollars to have a better position in retirement.

As to your first rub, we discussed it previously in this thread, and I had no issue with your personal approach. I think it's sound thinking, and in the coming years I may opt to pay my own mortgage off early to be free and clear of debt before my employer puts me out to pasture. =)

My sticking point to the first rub is that at a sub 3% rate, and a 30-year period, I feel the bank is providing me with insurance against inflation. While I will certainly pay them more in interest for the 30 year loan, I'll also be able to re-purpose those dollars in other investment vehicles. I have no crystal ball, but I think putting $1 into a fund like Vanguard's Life Strategy Growth fund for a 20+ year duration in a retirement account (trad or roth) will yield more than paying that $1 to my mortgage holder against a 2.875% annual cost.

I believe much of my response to you is just rehashing the same points made in earlier posts, but I wanted to respond to your point about "making 180 right decisions in a row." Going with the 15-year certainly assists you in avoiding lifestyle creep and retiring in a worse position. I'll get back to you in 20 years and let you know if I believe my strategy was effective, or if I should have taken yours. =)
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Re: 15 year or 30 year mortgage?

Post by scubadiver »

Moral of the story from all the various comments and discussions in this thread: Maintain discipline with respect to use of leverage and funding lifestyle.
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Re: 15 year or 30 year mortgage?

Post by Mike O »

I'm currently in the process of selling our home and buying a new one, this very question of course comes up.

my idea is simply, to take the 30 year and if I wanted to I could pay the amount I would have paid with the 15 and basically end with the same result but the benefit is the ability to pay the lower rate should the need arise. Now I don't plan on paying extra to my mortgage, my plan is to invest that value in a growth index ETF and then when I'm ready to retire it should have grown enough to pay off the mortgage IF I choose to do so. the benefit of paying it off would be lower expenses in retirement by owning the home outright, but i still retain the flexibility to keep the mortgage payment if my investments overall did well enough that I can afford it, but I'll make that decision much later when I'm ready to retire.

to me the flexibility is important and with a 3% rate I'm very confident that I'll make more in investments every year on average over the life of the loan.
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Re: 15 year or 30 year mortgage?

Post by willthrill81 »

Mike O wrote: Fri Jul 10, 2020 9:17 am I'm currently in the process of selling our home and buying a new one, this very question of course comes up.

my idea is simply, to take the 30 year and if I wanted to I could pay the amount I would have paid with the 15 and basically end with the same result...
No, the result will not be the same because 30 year rates are currently about .5% higher interest rate than 15 year mortgages. So even if you paid off the 30 year mortgage in 15 years, this currently works out to an additional interest cost of about $4,300 for every $100k of starting mortgage principal balance. That's the price of the flexibility of this approach.
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Re: 15 year or 30 year mortgage?

Post by Admiral »

willthrill81 wrote: Fri Jul 10, 2020 10:57 am
Mike O wrote: Fri Jul 10, 2020 9:17 am I'm currently in the process of selling our home and buying a new one, this very question of course comes up.

my idea is simply, to take the 30 year and if I wanted to I could pay the amount I would have paid with the 15 and basically end with the same result...
No, the result will not be the same because 30 year rates are currently about .5% higher interest rate than 15 year mortgages. So even if you paid off the 30 year mortgage in 15 years, this currently works out to an additional interest cost of about $4,300 for every $100k of starting mortgage principal balance. That's the price of the flexibility of this approach.
Agree. I think most people who think that they will pay a 30 year like a 15 (and I would add that most people probably don't actually do this) would be better off getting the 15 in the first place, and then doing a refi to 30 if money is tight.

Hoping, of course, that rates don't spike.
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Re: 15 year or 30 year mortgage?

Post by Outer Marker »

willthrill81 wrote: Fri Jul 10, 2020 10:57 am ...the result will not be the same because 30 year rates are currently about .5% higher interest rate than 15 year mortgages. So even if you paid off the 30 year mortgage in 15 years, this currently works out to an additional interest cost of about $4,300 for every $100k of starting mortgage principal balance. That's the price of the flexibility of this approach.
Well put. The simple fact is that the 30 year mortgage costs you more. No getting around that fact. A .5% savings in guaranteed, locked in. A 15 year is the best option for most savers, particularly in this market.
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Re: 15 year or 30 year mortgage?

Post by batpot »

kmok wrote: Wed Jul 08, 2020 2:28 pm
Maverick3320 wrote: Wed Jul 08, 2020 1:11 pm
batpot wrote: Mon Jul 06, 2020 4:37 pm
Triple digit golfer wrote: Mon Jul 06, 2020 3:29 pm
ddurrett896 wrote: Mon Jul 06, 2020 3:13 pm I'd do 30 if you're anywhere near being tight on 15.
Absolutely.
+2

Often, a 15 year makes no sense.
A recent example from another thread:
3% 30 year vs a 2.65% 15 year.
15 year costs $674/mo per $100k.
30 year costs $422/mo per $100k.

If you pay $674/mo per $100k on the 30 year loan, you'll have paid the loan down in 15 year, 6 months.
Only a 6 month penalty, and you can relax your monthly payment $252 per $100k if a month gets tight.
Lots of online calculators will compute pay off period with extra payments, and google's home page will tell you the baseline.
But if they can afford the 674/month every month for 30 years...why not just do the 15 year payment?
Exactly. 6 month penalty may be lower than some people's expectation, but it is also a pretty significant amount, depends on how you look at it.
like everything else: risk tolerance.
paying off a 30 year year in 15.5 years hedges loss of income risks.
Most people don't even do the math; just go for the lowest rate possible, i.e. this thread, where a 15 year is "tight".

The other factor most people don't consider is a 15 year makes no sense if you're not already maxing out your tax-advantaged savings (e.g. Roth/401k).
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Re: 15 year or 30 year mortgage?

Post by Admiral »

batpot wrote: Fri Jul 10, 2020 12:34 pm
kmok wrote: Wed Jul 08, 2020 2:28 pm
Maverick3320 wrote: Wed Jul 08, 2020 1:11 pm
batpot wrote: Mon Jul 06, 2020 4:37 pm
Triple digit golfer wrote: Mon Jul 06, 2020 3:29 pm
Absolutely.
+2

Often, a 15 year makes no sense.
A recent example from another thread:
3% 30 year vs a 2.65% 15 year.
15 year costs $674/mo per $100k.
30 year costs $422/mo per $100k.

If you pay $674/mo per $100k on the 30 year loan, you'll have paid the loan down in 15 year, 6 months.
Only a 6 month penalty, and you can relax your monthly payment $252 per $100k if a month gets tight.
Lots of online calculators will compute pay off period with extra payments, and google's home page will tell you the baseline.
But if they can afford the 674/month every month for 30 years...why not just do the 15 year payment?
Exactly. 6 month penalty may be lower than some people's expectation, but it is also a pretty significant amount, depends on how you look at it.
like everything else: risk tolerance.
paying off a 30 year year in 15.5 years hedges loss of income risks.
Most people don't even do the math; just go for the lowest rate possible, i.e. this thread, where a 15 year is "tight".

The other factor most people don't consider is a 15 year makes no sense if you're not already maxing out your tax-advantaged savings (e.g. Roth/401k).
Small point but relevant. It CAN make sense, depending on one's spending needs and portfolio size. If one's mortgage is paid off, then one's retirement expenses are lower, therefore portfolio size can be smaller. I have about 10 years left on my 15 and expect to retire in 8-10 years. We don't fully max retirement space (close but not maxed) because we have both high current schooling expenses and also a secure pension. The pension income reduces the portfolio draw, so having the house paid off is more of a priority than saving an extra 10k per year.
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Re: 15 year or 30 year mortgage?

Post by Mike O »

willthrill81 wrote: Fri Jul 10, 2020 10:57 am
Mike O wrote: Fri Jul 10, 2020 9:17 am I'm currently in the process of selling our home and buying a new one, this very question of course comes up.

my idea is simply, to take the 30 year and if I wanted to I could pay the amount I would have paid with the 15 and basically end with the same result...
No, the result will not be the same because 30 year rates are currently about .5% higher interest rate than 15 year mortgages. So even if you paid off the 30 year mortgage in 15 years, this currently works out to an additional interest cost of about $4,300 for every $100k of starting mortgage principal balance. That's the price of the flexibility of this approach.

300,000 at 3% for 30 years = 1264.81/ month = total interest paid = 155,331.6 which is 51.7% of the loan amount in interest
300,000 at 2.6% for 15 years = 2014.52/month = total interest paid = 62,613.60 which is 20.8% of the loan amount in interest

difference in payments: 749.71

300,000 at 3% for 30 years = 1264.81 + 749.71/month =total interest paid = 75,724.27 which is 25.2% of the loan amount in interest

amount paid extra to have a 30 year loan paid off in 15 years versus a 15 year loan = 13,110.67 or 874.04 per year

I said "basically" NOT "exactly" the same. by doing what I said you pay off your loan in 15 years, yes you'll pay a little bit more than if you got the 15 year loan but you are saving a significant amount of money doing it this way and you're gaining a huge amount of flexibility. Refinancing later is expensive to do. If you are disciplined, set yourself up an automatic monthly payment to the house with the extra principal included you can do it and wont' even know it's happening, but you'll always maintain control by having the ability to stop that nearly $1000 per month if you needed to. Might be the difference between keeping or losing your home. Everything comes at a cost, of course that cost is weighed different for each person. If you are the type that just looks at the math then yes a 15 year mortgage is for you, but if you look at it as a whole, realizing that a lot can happen in 15 years I personally believe paying 5% more in interest (while savings 25 percent in interest as compared to the 30 year) makes it a good choice that has a large upside and small downside.

but let me add, that unless you are already maxing all of your retirement savings then I'd do that before I'd pay extra on a mortgage. personally, I'm not paying anything extra to my house. I invest all extra money knowing I'm making more in gains than I'm paying on that 30 year note. If at retirement age I want to I can pay off the house with my brokerage account or I can keep paying it. There are benefits of a lower income in retirement but that's a longer conversation that would be off topic here.
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Re: 15 year or 30 year mortgage?

Post by TN_Boy »

willthrill81 wrote: Fri Jul 10, 2020 10:57 am
Mike O wrote: Fri Jul 10, 2020 9:17 am I'm currently in the process of selling our home and buying a new one, this very question of course comes up.

my idea is simply, to take the 30 year and if I wanted to I could pay the amount I would have paid with the 15 and basically end with the same result...
No, the result will not be the same because 30 year rates are currently about .5% higher interest rate than 15 year mortgages. So even if you paid off the 30 year mortgage in 15 years, this currently works out to an additional interest cost of about $4,300 for every $100k of starting mortgage principal balance. That's the price of the flexibility of this approach.
The cost is $4,300 per 100k of mortgage if you stay in the house 15 years. If you move before then, the difference of course will be less total dollars. A lot of people move before 15 years.

But that's a detail. In today's environment, which I consider unusually high risk -- because we do not know how the covid story is going to play out -- unless the 15 year monthly payment was very much a non-stretch, I'd de-risk a bit and go for the 30 year. I'd happily pay for the flexibility.

It's then a separate question whether to pay extra on the mortgage if you can, or put the money elsewhere.
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Re: 15 year or 30 year mortgage?

Post by willthrill81 »

TN_Boy wrote: Sat Jul 11, 2020 11:45 am
willthrill81 wrote: Fri Jul 10, 2020 10:57 am
Mike O wrote: Fri Jul 10, 2020 9:17 am I'm currently in the process of selling our home and buying a new one, this very question of course comes up.

my idea is simply, to take the 30 year and if I wanted to I could pay the amount I would have paid with the 15 and basically end with the same result...
No, the result will not be the same because 30 year rates are currently about .5% higher interest rate than 15 year mortgages. So even if you paid off the 30 year mortgage in 15 years, this currently works out to an additional interest cost of about $4,300 for every $100k of starting mortgage principal balance. That's the price of the flexibility of this approach.
The cost is $4,300 per 100k of mortgage if you stay in the house 15 years. If you move before then, the difference of course will be less total dollars. A lot of people move before 15 years.

But that's a detail. In today's environment, which I consider unusually high risk -- because we do not know how the covid story is going to play out -- unless the 15 year monthly payment was very much a non-stretch, I'd de-risk a bit and go for the 30 year. I'd happily pay for the flexibility.

It's then a separate question whether to pay extra on the mortgage if you can, or put the money elsewhere.
I believe that it's important for those considering the 'take out a 30 year mortgage and pay it off in 15 years' to be fully aware of the costs involved. Many do not crunch the numbers to see how much they are paying for the flexibility. If someone is aware of the costs and still believes it to be worthwhile, that's fine, but they need to be aware of this.

It's a personal assessment, but again, IMHO, if a person cannot comfortably afford a 15 year mortgage for a given property, then they probably don't need to take out a 30 year mortgage. That's a recipe for becoming house poor.

If a person is worried about not being able to make the payments on a 15 year mortgage, then said person may be buying too much house. If such people are not buying too much house but still feel concerned about the higher payments, then building a larger emergency fund is a logical choice that can be mathematically very worthwhile.

I personally find it interesting that many seem to be concerned about the higher payments on a 15 year mortgage but then seem to ignore that 30 year mortgage payments must be made for an additional 15 years. Those are 15 more years in which something can go wrong. I would question how much 'de-risking' actually occurs when many take out a 30 year mortgage instead of a 15.

Now if a person can afford a 15 year mortgage but (1) consciously wants a 30 year mortgage in order to leverage an investment that's likely to outpace the mortgage interest rate on an after-tax basis (such as stocks but definitely not bonds, at least now) and (2) has the fortitude to stick with the plan to invest the difference accordingly, then a 30 year mortgage is very plausible. But I've lost count of the number of posters here who take out a 30 year mortgage and then go invest a significant part of the monthly difference in bonds paying much less, especially after taxes. And some here have admitted that they planned to invest the difference but gave in to the temptation to spend it instead; I suspect that many others have fallen prey to this as well.

My point is that this is an area that warrants careful consideration. It seems that at least some are doing what many financially uninformed individuals do, focusing on monthly payments to the exclusion of the bigger picture.
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Re: 15 year or 30 year mortgage?

Post by TN_Boy »

willthrill81 wrote: Sat Jul 11, 2020 2:01 pm
TN_Boy wrote: Sat Jul 11, 2020 11:45 am
willthrill81 wrote: Fri Jul 10, 2020 10:57 am
Mike O wrote: Fri Jul 10, 2020 9:17 am I'm currently in the process of selling our home and buying a new one, this very question of course comes up.

my idea is simply, to take the 30 year and if I wanted to I could pay the amount I would have paid with the 15 and basically end with the same result...
No, the result will not be the same because 30 year rates are currently about .5% higher interest rate than 15 year mortgages. So even if you paid off the 30 year mortgage in 15 years, this currently works out to an additional interest cost of about $4,300 for every $100k of starting mortgage principal balance. That's the price of the flexibility of this approach.
The cost is $4,300 per 100k of mortgage if you stay in the house 15 years. If you move before then, the difference of course will be less total dollars. A lot of people move before 15 years.

But that's a detail. In today's environment, which I consider unusually high risk -- because we do not know how the covid story is going to play out -- unless the 15 year monthly payment was very much a non-stretch, I'd de-risk a bit and go for the 30 year. I'd happily pay for the flexibility.

It's then a separate question whether to pay extra on the mortgage if you can, or put the money elsewhere.
I believe that it's important for those considering the 'take out a 30 year mortgage and pay it off in 15 years' to be fully aware of the costs involved. Many do not crunch the numbers to see how much they are paying for the flexibility. If someone is aware of the costs and still believes it to be worthwhile, that's fine, but they need to be aware of this.

It's a personal assessment, but again, IMHO, if a person cannot comfortably afford a 15 year mortgage for a given property, then they probably don't need to take out a 30 year mortgage. That's a recipe for becoming house poor.

If a person is worried about not being able to make the payments on a 15 year mortgage, then said person may be buying too much house. If such people are not buying too much house but still feel concerned about the higher payments, then building a larger emergency fund is a logical choice that can be mathematically very worthwhile.

I personally find it interesting that many seem to be concerned about the higher payments on a 15 year mortgage but then seem to ignore that 30 year mortgage payments must be made for an additional 15 years. Those are 15 more years in which something can go wrong. I would question how much 'de-risking' actually occurs when many take out a 30 year mortgage instead of a 15.

Now if a person can afford a 15 year mortgage but (1) consciously wants a 30 year mortgage in order to leverage an investment that's likely to outpace the mortgage interest rate on an after-tax basis (such as stocks but definitely not bonds, at least now) and (2) has the fortitude to stick with the plan to invest the difference accordingly, then a 30 year mortgage is very plausible. But I've lost count of the number of posters here who take out a 30 year mortgage and then go invest a significant part of the monthly difference in bonds paying much less, especially after taxes. And some here have admitted that they planned to invest the difference but gave in to the temptation to spend it instead; I suspect that many others have fallen prey to this as well.

My point is that this is an area that warrants careful consideration. It seems that at least some are doing what many financially uninformed individuals do, focusing on monthly payments to the exclusion of the bigger picture.
I understand the math. I'm all in favor of doing the math.

I am saying that since I view this as a perilous time, I would value the flexibility (and would be willing to pay for it) of a 30 year mortgage.

I would agree the OP should be pondering whether or not they are buying too much house.
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Re: 15 year or 30 year mortgage?

Post by Outer Marker »

TN_Boy wrote: Sat Jul 11, 2020 7:10 pm I understand the math. I'm all in favor of doing the math.

I am saying that since I view this as a perilous time, I would value the flexibility (and would be willing to pay for it) of a 30 year mortgage.
I tend to think this "flexibility" is an illusory sense of security. The difference in payments is not that much. In the event of a catestrphic job loss, most people are going to be out of emergency money in under a year. The 30 year might allow you to tread water for a few additional months at best. If you've got a seven figure portfolio, no problemo either way.
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