Reply to If you don't have a 15 year mortgage, you're living beyond your means?

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Reply to "If you don't have a 15 year mortgage, you're living beyond your means?"

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]A $500K 30 year mortgage at 2.5% generates $213,323 in interest payments over 30 years. A $500K 15 year mortgage at the same rate generates $100,146 in interest. This is a $111,177 savings over 30 years. Furthermore, most 30 year mortgages carry higher APRs, thereby increasing the value of a 15 year even more.[/quote]

Exactly. Sounds like a lot of people on this thread don’t understand how compounding and interest amortization work. The longer money is borrowed, the longer you’re paying an interest privilege to have access to it. Even in the very first year of the above example mortgage, more interest is paid on the 30 year than on the 15 year. This increases significantly with each passing year until you’ve flushed an extra $111,177 in the garbage. Yes, you may be able to itemize deductions and get a tax break on the interest, but this is still just a tax deduction not a tax credit. Still better to not have paid interest in the first place.

So, yeah, in this example a 30 year monthly payment is $1,975 while a 15 year monthly payment is $3,333. The owner with the 15 year is piling the extra $1,358 (and then some, since % of P+I on I is lower) into building greater home equity via illiquid savings. The owner with the 30 year? Hats off if their $1,358 per month is being invested another way with a greater return. In the majority of cases, it’s actually used to cover things like taxes, insurance, car payments, and groceries. We at least know for a [b]fact[/b] that any owner with a 15 year mortgage is committed to savings. [/quote]

Not necessarily. We are apparently at the very low end of earnings for this board, and unfortunately latecomers to the DC area so we only bought in 2020. Since we finished saving for a down payment, we've been able to max out retirement accounts for the first time, saving about 50k of our 150k income toward that and any extra (tax and FSA refunds) toward 529s. If we had a 15 year mortgage, which we considered, we just would have several hundred dollars less to put toward those long term savings. Are we not "committed to savings"? Or is your analysis dependent on having so much money that you can just do it all? (There is no way we could find a rental for less than our mortgage + taxes + insurance right now, even for less space, I am 100% sure of this, so no, buying was not "above our means.")[/quote]

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