A friend of mine is closing on a $500,000 house next month, and he asked me what felt like a simple question: “Should I just do the 15-year mortgage so I’m not paying interest forever?”
Don’t forget the option to take the 30 year and throw in one extra payment each year. Shaves about 9 years off of a mortgage and still allows for flexibility of savings.
This analysis assumes you keep the house for 30 years, which is not the norm. Many people move before fully paying their house. In the 30-year scenario, if you sell before the 10th year you have barely made a dent in your loan principal. Unless the property has appreciated significantly, you will walk out basically with the same down payment you put in, minus the depreciated value of a now 10-year old house.
Don’t forget the option to take the 30 year and throw in one extra payment each year. Shaves about 9 years off of a mortgage and still allows for flexibility of savings.
He referred to that idea.
👍my first home, I added an extra $100 every month and it would have cut my term to about 21 years, also.
Of course that was decades ago, today that $100 would now be 300-500.
This analysis assumes you keep the house for 30 years, which is not the norm. Many people move before fully paying their house. In the 30-year scenario, if you sell before the 10th year you have barely made a dent in your loan principal. Unless the property has appreciated significantly, you will walk out basically with the same down payment you put in, minus the depreciated value of a now 10-year old house.
I’m 100% on team 15-yr. To me, no amount of money in the market (she says, hyperbolically) is as comforting and owning a home with no mortgage.
I used to advise my younger clients to do the 30-year mortgage, easier to qualify for one. And two “you don’t want to be married to your house”.
A fourth senecio put the difference into a deferred compensation plan, tradition IRA. Since it is tax deferred your return in higher.
Throw your first senecio in the garbage, no bank I know of has the same rate for both loans.
And even your 7% rate of return is a little optimistic, retirement planners usually use 4-5%.