15 or 30?

[Anonymous]

Okay, hubby and I are at an impasse. We're talking about mortgages and terms and such (and let me tell you: he is SO fricking impressed with all I've learned from you guys!!).

Hubby is seeing deep, deep into the future. He does not want to have to worry about a mortgage when he finally retires (Fed pension, SS, so not exactly "easy street"). So he's adamant about two things: 1) We put down at least 30-40K for "instant equity" and 2) that we get a 15 year mortgage.

(As background, he's 42, been employed by the Fed gov for 8 years -- and plans to retire in 12)

I'm after a 30 year. I feel that chances are VERY good that we will not retire here. Honestly, I'm a country girl and all this sand is starting to wear me thin. So my thinking is to get a 30 year with the thought that we'll sell and buy another somewhere else.

Even if we DON'T, couldn't we always refi later to a 15 year? Say, when the kids are off and married?

Hubby says that if we get a 30 year and refi to a 15 year, we'll end up losing oodles of money.

What do you think???????

TIA!!

[Watchmann]

I was in similar situation, and I went for a 15 year fixed at 5% (back in 2003).  The monthly payment is higher but you really chew into the loan principal quickly, and interest paid over the loan is far lower.  Right now I'm five years into the loan and have already paid off about 30% of the loan, and about 60% of each payment now is going to principal.  It's an investment in myself.  And it is satisfying to see the loan being paid down at rapid clip.  Even if you don't plan to permanently stay in the house it doesn't negate the advantages of a 15 year loan; you'll still build more equity in your house with a 15 vs a 30.  With a shaky stock market the options to go with a 30 and 'invest the difference', the arguments for a 30 year loan are much lower now. 

Here is a good article from The Mortgage Professor's website.  You really have to decide what kind of person you are, a Wealth Maximizer or a Payment Minimizer.  Me? .... I'm a Wealth Maximizer.

http://www.mtgprofessor.com/A%20-%20Term/30_years_or_15.htm

Message Edited by Watchmann on 08-07-2008 12:21 AM

[DallasLoanGuy]

see what your payment is for a 15yr loan.... get the 30yr and pay extra(the difference).

[southernficoaddict]

Wonderin, I am with Dallas, get the 30 and pay the extra.  If you have a financial emergency (and don't we all) you won't be tied to the higher payment.

[Anonymous]

I agree with Dallas -

[Anonymous]

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Wonderin wrote:
Okay, hubby and I are at an impasse. We're talking about mortgages and terms and such (and let me tell you: he is SO fricking impressed with all I've learned from you guys!!).

Hubby is seeing deep, deep into the future. He does not want to have to worry about a mortgage when he finally retires (Fed pension, SS, so not exactly "easy street"). So he's adamant about two things: 1) We put down at least 30-40K for "instant equity" and 2) that we get a 15 year mortgage.

(As background, he's 42, been employed by the Fed gov for 8 years -- and plans to retire in 12)

I'm after a 30 year. I feel that chances are VERY good that we will not retire here. Honestly, I'm a country girl and all this sand is starting to wear me thin. So my thinking is to get a 30 year with the thought that we'll sell and buy another somewhere else.

Even if we DON'T, couldn't we always refi later to a 15 year? Say, when the kids are off and married?

Hubby says that if we get a 30 year and refi to a 15 year, we'll end up losing oodles of money.

What do you think???????

TIA!!

---

If you were to get a mortgage through a bank like a credit union that offers you the ability to pay your loan biweekly instead of monthly, you will be able to shave off 5 years on a 30 year mortgage right there.  The only extra payment you would be making is 1 a year.  Then if you do what dallas says and pay a little extra, you will be able to pay off your loan in 15 years but keep your monthly payment your required to make low in case of emergencies instead of doing a 15 yr loan and having to pay double.  Dont forget by paying a 15 yr mortgage you wont see the tax benefits your loan interest would give you since most of your payment will go to principal.

[Tons_of_Debt]

I echo steel on this. The primary benefit I see to a 30 yr is that the interest is tax deductible...

[Anonymous]

Paying extra mortgage interest to get (more of) a tax deduction is a little backwards. You'd be better off financially not paying the interest in the first place (or paying less interest). All the tax deduction does is slightly lessen the burden of the interest, but it doesn't turn a loss/expense (interest paid) into a net gain/income. The 15 year loan (or a 30 year loan with voluntary extra payment to pay it off in 15 years) is the the winner hands-down in terms of maximizing financial wealth if you can comfortably afford the monthly payment.

[Anonymous]

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@Anonymous wrote:
Paying extra mortgage interest to get (more of) a tax deduction is a little backwards. You'd be better off financially not paying the interest in the first place (or paying less interest). All the tax deduction does is slightly lessen the burden of the interest, but it doesn't turn a loss/expense (interest paid) into a net gain/income. The 15 year loan (or a 30 year loan with voluntary extra payment to pay it off in 15 years) is the the winner hands-down in terms of maximizing financial wealth if you can comfortably afford the monthly payment.

---

We CAN, but like others pointed out, things happen. Hubby, just a year or so ago, completely blew out his knee and was only TWO days away from having to take disability (even though it would have been temporarily) due to Workman's Comp regs. As it was, he went back before he was supposed to. And he had a crapload of leave (he NEVER takes vacations) to draw from.

So I want the payments to be VERY comfy. No-problem-at-all-its-peanuts comfy so if something catastrophic DOES happen, we'll be fine.

Going 15 will add an additional $400 to what we pay now (30 year pretty much equals exactly what we pay in rent). In my mind, even though if we go 30, I plan on making 15/year equivalent payments, I'd really like that cushion.

Does all that make sense?? We even have my SIL (an amazing woman, BTW -- love her to DEATH!!) saying that we should do 15/year payments on a 30. But, she's not a loan officer -- she's the VP of sales.

[Anonymous]

As far as my argument is concerned a true 15 year mortgage or a 30 year mortgage agreement paid off in 15 years with no prepayment penalty are equivalent. I was refuting the argument that it's better to pay it off in 30 years because you get more tax deductions.

The only thing you lose by getting a 30 year mortgage and paying it off in 15 is a small difference in interest (lenders charge a marginally higher interest rate for the longer term loan). So, you'll pay a little bit more that a true 15 year mortgage, but that tiny bit of extra interest is probably small compared to the peace of mind of having the flexibility to lower the payment down the to "30yr" level if/when necessary.

That brings up an interesting question for the mortgage experts. If you pay extra toward a 30 year mortgage (say at the equivalent of a 15 year mortgage payment) and then want to reduce your payment to the minimum required at some point (say, after a year or two), is the new minimum payment reduced so that the term of the mortgage is still 30 total years, or do you always have to pay the original "30 yr" monthly payment, and the term of the loan is simply shortened by the prior extra payment amounts?