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15 vs 30 year mortgage

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  • #16
    We chose a 15-year mortgage 6 years ago when we bought our house, and again 4 years ago when we refinanced. There were 3 reasons for that, which may or may not apply to your situation. At that time, the spread in interest rates between 15- and 30-year mortgages was much greater than it is now, and the thought of paying that much interest was not appealing to me. Secondly, I wanted the financial discipline of paying for a house on a 15 year plan instead of 30. I was a little worried about what we would do with our newfound “fortune.” The last reason was because I had goals to pay off my student loans, max retirement accounts, and try and save in kids’ 529 accounts, but knew that I likely wouldn’t be able to save enough in the 529s to completely pay for college, so I wanted the mortgage payment to be done so I could cash flow kids’ college expenses. Depending on what they do, I will have 2 in college at the same time for 2 years at least, and then the third coming right up on their heels. If the first takes longer than 4 years then I could have 3 in college at the same time.

    Mathematically, it makes more sense to do a 30 year and invest the difference, and I’m sure I would have come out ahead if I had done that with the kids 529 accounts instead of putting that money in the mortgage. And even moreso with how low mortgage rates are now.

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    • #17
      lots of actionable advice above.
      Another consideration: when do you desire to be finished paying on a mortgage? when you are 60 and ready to retire? or at age 45 when your kids are done with high school? Chose a target finish and work backwards.

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      • #18
        Originally posted by jz- View Post
        lots of actionable advice above.
        Another consideration: when do you desire to be finished paying on a mortgage? when you are 60 and ready to retire? or at age 45 when your kids are done with high school? Chose a target finish and work backwards.
        I don't plan on buying/need an expensive house (<x2 current salary), so don't think I'll need to drag it or 30 years. That being sad, It appears that I have better use for money right now - student loans, maxing out retirement accounts, 529, etc...

        Thinking of doing 30 year for now and refinance to 15 when I'm done with student loans and perhaps a higher paycheck at that point.

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        • #19
          +1 to 30

          Financially, it is likely that investing the difference will result in more $ saved/accumulated for yourself over the long haul.

          Practically, you can make extra payments if you still want to pay it off in 15. The beauty is you can make extra payments whenever you want and can stay with the smaller set payment if you need the extra cash during a given period. Also, after paying off enough in a given year, you can do a recalibration, which keeps what is left of the 30 years, but reduces the monthly payment based on how much you have already paid off. Lots of flexibility with the 30.


          Full disclosure: I valued paying off the mortgage a little quicker, which is from a slightly risk adverse attitude and provides more flexibility over the short term. Originally had a 30 year mortgage, but paid a lot down and just refinanced to a 15, which actually lowered the payments. I will likely start investing more given the current low mortgage rate of 2.25%.

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