15 year vs. 30 year mortgage

[Anonymous]

Anonymous wrote:But if I could confidently make more than 3% on my money, wouldn't it be a smarter investment to take out a 30 year loan, have a lower monthly payment, and invest the money instead in the stock market (again, only if I was sure to make more than 3%)?

First, explain how you can be "sure" you'll make any rate of return in the stock market? I have $1M in stocks, so I'm not anti-market, but there are certainly no guarantees.

Second, the point is to get rid of your mortgage, period. Pay it off as soon as you can. This is why I favor eliminating the mortgage deduction. People shouldn't be rewarded for paying interest.

[Anonymous]

I agree with you. I'm just trying to figure out if there are any downsides to going to the 15-year mortgage. The only one I can think of is the idea that there is some opportunity cost if we tie up most of our money by putting it into the house on this accelerated basis, as opposed to investing it in the market, coupled with the notion that we'll lose the mortgage deduction.

[Anonymous]

Anonymous wrote:I agree with you. I'm just trying to figure out if there are any downsides to going to the 15-year mortgage. The only one I can think of is the idea that there is some opportunity cost if we tie up most of our money by putting it into the house on this accelerated basis, as opposed to investing it in the market, coupled with the notion that we'll lose the mortgage deduction.

Other downsides: You tie yourself into a higher payment that limits flexibility for your employment. And, if the market takes another big dive, the money in the house is just gone, whereas with a higher balance on your mortgage you can do a short sale and limit your loss (while killing your credit) while sticking the bank with the negative results of your bad luck.

[Anonymous]

Anonymous wrote:We had that same choice twice this year. What made us go for the 30-year each time was the flexibility. Our original mortgage payment totaled about $5100 in two loans, and we had been paying that off for seven years. We refinanced into one loan in the spring that cut the payment down to $3700 for 30 and about what we had been paying for the 15. We were loathe to start over at 30 more years, and could still pay what we always had, but having been through a recent financial upheaval, we knew that having the option for the lower amount when times were tough was the better move for us. And while we're in a good place, we are still paying $5100 every month with the remainder going directly to principal. Calculations told us that if we do that every month we'll pay it off in 15 years anyway.

We financed again a couple of months ago and now it's down to $3300. Made the same decision again and are happy with it. If you are disciplined enough to make the extra payments you cut a ton of interest and a lot of time off the life of the loan.

This is smart, but what was the interest rate difference if you don't mind me asking?

[Anonymous]

We have an ARM that is tied to the last 12 months of federal interest rate. Our rate is currently 3.125%. We have a 30 year mortgage and I prefer this to the 15 year mortgage because I decide how much extra to pay. I currently pay about 75% of the payment that I would have if it were a 15 year mortgage and we are set to pay off our 30 year mortgage in about 20-21 years. Before kids, we were paying at a faster rate (we were aiming to pay off in 17-18 years), but I decreased the additional principle payments when we had twins. I like the control it gives me. If we have a really bad few months, I could cut back to the regular 30 year payment and use the extra money, but we haven't had to do that, so we don't.

And we've been in the house long enough that if the federal interest rate goes back up (unlikely to go up before 2014), then I can worry about refinancing then.

[Anonymous]

I don't remember, but I got an email from National Cooperative Bank today which laid out the difference on a conforming loan (less than $417K) - 3.25% for 30 years, 2.625% for 15 years.

[Anonymous]

We refi-ed in 2010 from a 5.5% 30 year to a 3.75 15 year at a slightly lower balance than OP is trying to refinance. We had paid for 7 years on the 30 year. For slightly more money per month, we will be done 8 years sooner than we would have been before, just before first child heads to college. It made sense to me.

We refi-ed our old house and took money out at the time and got a lower payment by staying with a 30 year. At that point, we needed the cash in our pocket.

In other words, it depends on what you need and whether you can afford to lock the cash up in the house. We solved the cash lock up problem by opening a HELOC after the 2010 refi. We haven't needed to hit the HELOC.

Good luck.

[Anonymous]

Anonymous wrote:


"Never understand the mindset of people who wants to pay more interest so they can deduct it come tax time... "


This is a point our accountant often makes to us.

I wonder what your accountant would say about people who go on DCUM and ask for "advice" on what is essentialy an arithmetic problem?

[Anonymous]

Reviving this old thread . . .

Currently thinking about refi-ing from a 30 yr fixed to a 15 yr fixed. Our 30 year (result of a refi last year) is at 4.375%. We could refi now to a new 30 yr fixed @ 3.5 or a 15 yr fixed @ 2.625.

We're pondering whether to refi to a 30 yr and then prepay on mortage as if it were a 15 yr. While paying a slightly higher rate, this would give us the flexibility of a lower payment if ever we needed that flexibility somewhere down the road. Or should we refi to the lowest rate possible (15 yr) and forego the flexibility.

The other thing is that we are really on the fence about whether we will stay in our house for the long term. We will stay at least 3 years. We may stay for the long haul, but really not sure about that.

Our jobs/salaries are currently stable and no expectations that will change anytime soon. We can afford the higher 15 yr payment. (In fact, I don't think we'll notice the higher payment since the difference is less than our daughter's preschool tuition, and she will be done in June, starting public K in the fall).

[Anonymous]

We just did the 15 year at 2.875.

Both in stable jobs, adequate other savings and investments for most eventualities, so the extra liquidity of having a 30year and overpaying principal was not worth it for us.

[Anonymous]

Anonymous wrote:

Anonymous wrote:We had that same choice twice this year. What made us go for the 30-year each time was the flexibility. Our original mortgage payment totaled about $5100 in two loans, and we had been paying that off for seven years. We refinanced into one loan in the spring that cut the payment down to $3700 for 30 and about what we had been paying for the 15. We were loathe to start over at 30 more years, and could still pay what we always had, but having been through a recent financial upheaval, we knew that having the option for the lower amount when times were tough was the better move for us. And while we're in a good place, we are still paying $5100 every month with the remainder going directly to principal. Calculations told us that if we do that every month we'll pay it off in 15 years anyway.

We financed again a couple of months ago and now it's down to $3300. Made the same decision again and are happy with it. If you are disciplined enough to make the extra payments you cut a ton of interest and a lot of time off the life of the loan.

This is smart, but what was the interest rate difference if you don't mind me asking?

Sorry, I don't remember what the rate difference between the 30-year and the 15-year was. The difference between the first set of two loans was substantial, though. Went from first at 5 5/8 and second at 6 1/4 to 4.5 (since we were consolidating two loans it's considered a cash out refi, plus loan amount was between $417K and $625K so higher rate), then the second refi got us down to 3.5. I think the 15-year was slightly under 3, it just wasnt worth it to increase the size of our monthly nut.

[Anonymous]

Anonymous wrote:

Anonymous wrote:But if I could confidently make more than 3% on my money, wouldn't it be a smarter investment to take out a 30 year loan, have a lower monthly payment, and invest the money instead in the stock market (again, only if I was sure to make more than 3%)?

First, explain how you can be "sure" you'll make any rate of return in the stock market? I have $1M in stocks, so I'm not anti-market, but there are certainly no guarantees.

Second, the point is to get rid of your mortgage, period. Pay it off as soon as you can. This is why I favor eliminating the mortgage deduction. People shouldn't be rewarded for paying interest.

#humblebrag

[Anonymous]

Anonymous wrote:

Anonymous wrote:But if I could confidently make more than 3% on my money, wouldn't it be a smarter investment to take out a 30 year loan, have a lower monthly payment, and invest the money instead in the stock market (again, only if I was sure to make more than 3%)?

First, explain how you can be "sure" you'll make any rate of return in the stock market? I have $1M in stocks, so I'm not anti-market, but there are certainly no guarantees.

Second, the point is to get rid of your mortgage, period. Pay it off as soon as you can. This is why I favor eliminating the mortgage deduction. People shouldn't be rewarded for paying interest.

Nonsense.

Look, if you can't make 3% per annum over 15 years, we're all going to have bigger fish to fry than your mortgage.

You're not a goldbug by any chance?

[Anonymous]

Anonymous wrote:But if I could confidently make more than 3% on my money, wouldn't it be a smarter investment to take out a 30 year loan, have a lower monthly payment, and invest the money instead in the stock market (again, only if I was sure to make more than 3%)?

A few other things to consider:

Yes, you CAN get a 30 year mortgage and invest the extra money or pay off the mortgage early. But will you? Every single month for 15 years? If you know that you will do smarter things with the extra money, maybe the 30 year loan is right for you. But most Americans lack the discipline to do this.

Also, until you pay off your mortgage, the bank has a right to your house. Yes, maybe things are rosy now. But if your financial situation changes, knowing you are safe from foreclosure would mean alot.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:But if I could confidently make more than 3% on my money, wouldn't it be a smarter investment to take out a 30 year loan, have a lower monthly payment, and invest the money instead in the stock market (again, only if I was sure to make more than 3%)?

First, explain how you can be "sure" you'll make any rate of return in the stock market? I have $1M in stocks, so I'm not anti-market, but there are certainly no guarantees.

Second, the point is to get rid of your mortgage, period. Pay it off as soon as you can. This is why I favor eliminating the mortgage deduction. People shouldn't be rewarded for paying interest.

Nonsense.

Look, if you can't make 3% per annum over 15 years, we're all going to have bigger fish to fry than your mortgage.

You're not a goldbug by any chance?

I agree it seems unlikely that you couldn't get 3% from investments, but far from impossible. If you look over history you will find 10 year periods of zero return. When you look at the size of the debt burden in the US and other advanced economies, the current elevated levels of profit as % of GDP, and the political polarization/obstructionism in Congress, it is not hard to make a case for very low returns over the next few years.