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15 vs 30 year fixed mortgage

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  • 15 vs 30 year fixed mortgage

    We are in the process of getting our first home. It will likely cost high 6 figures, low 7 figures. I was wondering what most people have done for their mortgages - either 15 year fixed or 30 year fixed. The 15 year rates I've seen have been in the 3.375-3.5 range and 30 year rates in the 3.5-4.0 range. With strong income, we'd be able to afford either option, with obviously the 15 year being more expensive per month (probably 6-7k/month). Some family/friends have encouraged us to take 15 year so it is paid off early while others have recommended stretching out to 30 years and then using the difference elsewhere to build wealth...probably just invest as student loans are gone. Their argument is that if you want to pay more, you can always do that with extra payments on the 30 year. However, I'm well aware that finance extends beyond just the math and their is a big behavioral component as well.

    I suppose this is another way of asking invest vs pay off debt. But I'm just curious what other WCI disciples have chosen for their mortgages in the last few years. For those who chose one particular option, were they happy with that decision and would they do it again?

  • #2
    I purchased a $1.5M home with 15 year mortgage. Monthly payments were right at $10,000/month. At first, I was only paying the mortgage so I could build my nest egg but now that I've eliminated all my debt, except this mortgage, I've been accelerating the payments on the house. I know it's probably more wise to invest that money but I value the piece of mind of debt free even more. For me, it was an easy decision to redirect extra money toward paying off the house because I had zero trepidation (going with my gut feeling)


    • #3
      There’s pros and cons to each. A 30 year will almost always be at a higher interest rate. A 30 year will also give you more financial flexibility. On the other hand, not everyone always invests the difference like they say they’re going to. I’d choose a 15 year.


      • #4
        It depends on your goals. We went with a 30 year and the fixed rate we got was 3.375%. We're now in year 7. No regrets. We have not started to throw extra at the mortgage. But for now we've gone several years of putting ~30-35% of gross income towards retirement. Don't really want to FIRE in our 30s or even early-mid 40s so I'm fine with the plan. At the same time I don't want a mortgage when I retire. So there will come a time when we need to put extra towards the mortgage since I don't want it to exist in my 60s. Probably will start doing this in 3-5 years and start small, like $500/month. We also believe in funding 529s. So with all of this going on, I like the flexibility of having the 30-year loan. Cord is right-most won't invest the difference. I suppose we're a family that does not, but the other rule is to save at least 20% for retirement, and we're sufficiently ahead of that, so I'm okay with a 30-year mortgage for now


        • #5
          All of us chumps who are paying off our mortgage are going to feel really stupid when the next political candidate claims they will forgive all mortgages.

          I went with the 15-year term. I like the idea of being done with my mortgage as my kids are entering college.

          in order for the math to work out with investing the rest you really need to invest all of the difference. If you miss even a few hundred dollars a month you have lost a good opportunity.


          • #6
            I got a 30 year mortgage, refinanced to 15 year after 3 years. Wish I had gone with 15 year initially. If you can afford it, go 15 year and even try to pay off earlier.


            • #7
              If you can do 15 and cashflow isn't a concern, that's the way to go imo. Would you borrow at 3.5% to invest?


              • #8
                A 30 year term will give you more financial flexibility. You can still pay the loan off in 10-15 years, but in case you have an unforeseen financial hardship, you won’t have the pressure of making high mortgages payments.
                I think having this flexibility is worth the 0.5% extra in interest rate. If you pay it off in 15 years on a 30 year mortgage, that absolute amount is so little. And if you are able to pay it off in 10 years, then it really doesn’t make much different. I like the financial flexibility.

                With that said, you can’t go wrong with either scenario.


                • #9
                  When we bought our house, our combined income would have been stretched at 15, as we were adopting kids, and I was not yet a partner in my group (aside, “partner” was autocorrected to “pervert”).

                  We started at 30, refinanced to 15 and 10, over the years, adding lump sums at each refinance and additional pay payments when possible. We ended up paying the house off at just under 11 years, and I would aim to do the same again.


                  • #10
                    My story is similar to Vagabond's. We started with 30 year fixed, but it wasn't really a perfect time to be buying as we had a practice purchase coming up, and knew we would be gutting the kitchen within a few years. We wanted to limit stress on cash flow. The rate was something like 3.75 or 3.875.

                    4 years later, the kitchen was done in cash, and the practice was humming along. We refinanced into the absolute lowest rate we could get, which is a 7/1 ARM (3.125%). My plan is to pay that to zero by the time the rate resets, which is not coincidentally the time in my life that I expect to put serious thought into slowing WAY down at work and the kids will be out of the house. I consider paying the mortgage to zero a luxury item, rather than the best financial choice.


                    • #11
                      Originally posted by VagabondMD View Post
                      When we bought our house, our combined income would have been stretched at 15, as we were adopting kids, and I was not yet a partner in my group (aside, “partner” was autocorrected to “pervert”).
                      Never underestimate how well our phones know us. Also, congrats on becoming a pervert in your group (although I'm many years late with this congrats)!


                      • #12
                        Retirement accounts (including a taxable if needed)
                        Taxable investments for wealth
                        The interest differential is probably minimal if you payoff the mortgage at the same rate. How quickly you actually pay it off/invest is more important to your wealth. The drag of selling a house is high and not impacted by the term either. Returns are probably higher on investments due to the consumption factor of the house and liquidity of that taxable investment account IF you actually invest it.


                        • #13
                          Have you asked yourself, "do I need a $1M first home, last home, or anything in between for that matter?" Or is it the "doctor house"? I asked, and found the answer - too late. Will I do it again? No. I will concede that in some areas it is simply what one needs and no more - fine in this case.

                          We often think in terms of acquisition costs. Make sure to have factored in closing, maintenance and repair costs. Furniture/decoration, property taxes, insurance/deductibles, remodeling, roof replacement, utilities, landscaping/pressure washing/repainting, housekeeping, association dues, repairman overpricing, pool/screen maintenance, appliance/HVAC repair/replacement and the like...and the associated time drain? If so, you are ready to proceed.

                          15 better than 30 if monthly payments affordable. Either way, prepayment is a good idea but a slower process with 30 due to front-loading of interest. Before I knew this, first house was a 30 year fixed. Last project was a 10 year fixed. I've opted to never take over 5 years to pay off any debt. I read somewhere that for the wealthy 8 years is average.

                          "The borrower is slave to the lender."

                          For smaller debt considerations, "cash is king".

                          Most importantly, make great memories in whatever home you choose!


                          • #14
                            If you can't afford the house with a 15 year loan, then you can't afford the house, IMO. I don't know why anyone would choose a 30 year loan on a seven-figure house. If you're worried about cash flow or "unforeseen financial hardship," buy a less expensive house and beef up your emergency fund. Houses are EXPENSIVE. Don't pretend they aren't just because someone wants to convince you that the lower monthly payment is affordable. Like zero-interest furniture deals, or buying a car with a 7-year loan.


                            • #15
                              Lots of variables and reasons for 30 vs 15.

                              First. Sportydog said it right. If you can't afford 15 and looking only at 30 for that reason, you're probably reaching....especially in this forum.

                              second. If you're asking because of pure investment strategies, age old leverage question. 15 for conservative. 30 if you can beat the 3.5% market on your choices like jh said.. 30 with paydown if you want choices along the way like vagabond.

                              We've chosen 30y in all ours to date 10+ mortgages to allow for max options. Most recent us year 5 of 30 with 550k left. Have a taxable fund that's ready to payoff when we want to. That conservative mortgage fund been doing quite well beating the 3.5% handily and funded a few upgrades this year...sunroom, kitchen repaint and dvc timeshare