Let’s make this nice and simple. Assume we buy a new home that costs $Y with a down payment of 20%. At the 2.5% APR that everyone on DCUM seems to have, this means a mortgage of $0.8*Y over either 15 or 30 years. At 30 years, the fixed monthly principal + interest payment is $0.003160*Y. At 15 years, the fixed monthly principal + interest payment is $0.005334*Y. Monthly property taxes might be around $0.0009*Y. Monthly homeowners insurance might be around $0.0001*Y.

PITI for a 30 year mortgage ends up at $(0.003160 + 0.0009 + 0.0001)*Y = $0.004160*Y

PITI for a 15 year mortgage ends up at $(0.005334 + 0.0009 + 0.0001)*Y = $0.006334*Y

The rule of 28% tells us that PITI should be no more than 28% of gross monthly HHI (MHHI).

Now, let’s solve for Y as a function of monthly gross HHI (MHHI) and annual HHI (12*MHHI):

30 year mortgage: $0.004160*Y < 0.28*HHI: Y < 67.31*MHHI: Y < 5.61*HHI

15 year mortgage: $0.006334*Y < 0.28*HHI: Y < 44.21*MHHI: Y < 3.69*HHI

Multiple your HHI by 3.69. If your house cost more than this when you bought it, and you’re dependent on a mortgage for financing, you’re living beyond your means. These people can’t get approved for 15 year mortgages, so they regress to buying a home with a 30 year one. Now, according to the bank, you can afford a home that is 5.61X your HHI. Buy, of course! Awesome way to impress your friends and family until you realize you didn’t budget for a 1.5X increase in maintenance costs and now can’t afford to spend a few hundred dollars to even remove a fallen tree.

Anonymous wrote:Assuming you're not a troll, yes, you're way off base. Forget whether you have a 15 or 30-year mortgage. Why would you live in a crummy neighborhood and drive a BMW?

Pretty common for new homeowners to move into highly desired neighborhoods these days, usually millennials, being barely able to make the PITI payments even on a 30 year mortgage. Figure they'll just increase buying power over time, but then they forget to budget for things like furniture or the standard 2% of home value on annual maintenance and improvement. So, they'll buy that $1.2M home but then can't find the extra $2K per month to set aside for the occasional new roof, new HVAC, driveway paving, landscaping, etc.... House and property start looking like the neighborhood eyesore. Meanwhile many buy in during a bubble (think 2005-2007), home prices fall, and then they're also underwater because they didn't have the financial discipline to go with a 15 year mortgage. These are the same folks that lack the discipline to produce at work, end up getting laid off, and get foreclosed upon.

Anyone that has the financial wisdom to take on a 15 year mortgage has almost certainly done so after having maxed out retirement at 20%+, HSA contributions, 529 plans, and after having allocated sufficient discretionary budget to weather the occasional economic storm.

Anonymous wrote:Home many in DMV actually have a 30 year mortgage?!? DH and I have a 15 year at 2.25%. Of course, we could have gone with a 30 year and invested the savings in the stock market, but how many people actually do this? Most of my friends have homes worth twice ours, but they have an HHI that is maybe 1/2. Most of our neighbors with similar home values are sporting used Toyotas, unkempt yards, IKEA furniture, and vacations to Rehoboth. Meanwhile, we have BMWs, several millions in savings, well manicured gardens and maintained home, heirloom Stickley furniture, and multiple int'l vacations per year in first class. One of our neighbor's trees fell down 2 years ago near the edge of our property line and they still haven't removed it. They want to split the $800 cost for removal. For real?!? Are we way off base, here?

Assuming you're not a troll, yes, you're way off base. Forget whether you have a 15 or 30-year mortgage. Why would you live in a crummy neighborhood and drive a BMW?

Only chumps pay off their mortgages. The smart ones use OPM (other people’s money) to build wealth.

Houses in this area are expensive and the vast majority of people cannot afford a 30 year mortgage. HOWEVER I think there are a lot of high income people that post here ($300K+) that could chose to buy lesser house on a 15 year mortgage and be better off financially but they have expensive tastes. We make $400K a year and live in a $700K house on a 15 year mortgage. Probably most others with this income would buy a 1m+ house on a 30 year and complain they could not find anything livable.

Anonymous wrote:Amazed how many people take the bait and feed the troll .

+1

Amazed how many people take the bait and feed the troll .

Stickley furniture is so fug.

Anonymous wrote:

Anonymous wrote: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.

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 fact that any owner with a 15 year mortgage is committed to savings.

Of course I understand compound interest. I also understand that my money will get a much better return in almost any investment over time. My 30 year mortgage has a 2.25% interest rate and I’m in my early 30’s. I’m better served paying the minimum and investing the difference in retirement savings. I’ll also have way more wiggle room for childcare when that is relevant or taking risks with my career if a good opportunity comes.

Where do you live, OP?

I have a BMW and we are in the market for a new car and have ruled out any BMWs. It’s our 2nd and we’ve had expensive problems with both.

And I’m laughing at the idea of Stickley furniture being an investment. I have quite a bit of Stickley furniture - bedroom set, dining room table, living room side tables, etc. Mostly bought in the 90s. No one wants brown furniture, even with the current coastal grandma phase. I have some in the attic - it feels too expensive to freecycle or donate so I’m stuck with it. Maybe you want to buy it from me OP? That said we also have ikea furniture in our house. I love ikea!

We have paid off the mortgage on our primary home but I went with a 30 year and made extra payments. Same with the current beach house. It’s a 30 year but we will pay it off in 10. And it’s been a great investment - in less than 10 years it’s more than doubled so has done better than the stock market. It’s not liquid, but we have plenty of liquidity.

OP I’m sure I’m older than you and you will learn that material possessions are fleeting. If you love a piece of furniture or a car that’s great. But don’t love it because of the brand name.

Anonymous wrote:

Anonymous wrote: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.

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 fact that any owner with a 15 year mortgage is committed to savings.

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.")

Anonymous wrote: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.

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 fact that any owner with a 15 year mortgage is committed to savings.

Troll and not even a good one.

Anonymous wrote:I’m laughing about the BMW. Do you think that’s a quality car?

NP. I think BMWs are very high quality cars. I am a mechanical engineer with a specialization in automotive engineering and am amazed at the attention to detail that is placed into most of their models. Any car brand can cherry pick one or two features upon which to optimize (e.g., quietness, acceleration, state-of-the-art tech, cost, etc…), but building a vehicle that has been optimized and harmoniously balanced across a multitude of characteristics is impressive. This is why a BMW is the Ultimate Driving Machine.