Our decision on the 15 vs 30 year mortgage debate!

by J. Money -

home mortgages

Whelp, after weeks of going back and forth on this one we’ve finally come to a conclusion!

And much to my surprise, we’re going with the 30 year mortgage!!

Didn’t see that one coming! Haha…

But after pouring over hundreds of comments and finally having “the talk” with the wife, it just seemed to make the most sense at the end while giving us the ultimate flexibility. Particularly with the # of kids in our household and my declining desire to hustle as the years pass ;)

With that said though, it sure doesn’t change my desire to pay off the house AS SOON AS POSSIBLE! So the plan will still very much be to pay it down in 15 years or less if we’re lucky, I just have to now be okay with ponying up the extra $$$ every month for having the luxury of this freedom, haha…

WHY DID I EVEN RUN THOSE STUPID NUMBERS LAST WEEK!!!

I gotta say though – y’all really came through with the advice, and the amount of opinions that were sent over were equally as strong as they were varied. I must have heard over 15 different ways to mortgage a house, with some of y’all having it down to a science! :)

Here’s what the overall breakdown looked like for all who’s interested:

  • Those in favor of 30 year mortgages: 55%
  • Those in favor of 15 year mortgages: 35%
  • Those in favor of some sort of ARM concoction: 6%
  • Those in favor of other random year’d mortgages (like 7 and 20): 4%

(Interestingly, The 7 year term was the 3rd most popular brought up! Maybe because it’s a lucky number?!)

And then here were a majority of all the pros sent over for having a more extended mortgage like a 20 or 30:

  • Less monthly payments which = more flexibility
  • The option to still pay down as much of the mortgage as you’d like to cut down costs/time
  • The ability to use the difference of $$$ saved for other wealth-building goals like investing in the market (the biggest recommendation sent in), or for leveraging other real estate/business opportunities
  • The ability to hedge inflation and “short the dollar”, as my friend Brad is fond of saying (same guy who shared yesterday’s rental property/college tuition hack with us ;))

    Not to get too technical, but the Federal Reserve openly targets a 2% annual inflation target for the dollar. In 30 years a dollar won’t be worth pi$$. Think of your grandpa’s stories of about going the movies for 5 cents. Hell, my elementary school lunch used to be 25 cents and it was a huge deal when they increased it to 75 cents. My daughter’s public school lunch is $3 now…haha.

    I’m trying to buy as much land/real estate and real tangible assets on the longest fixed term/note possible because I will be paying my fixed loans back with funny money in 30 years. My $2,000 mortgage payment today which will be the same in the year 2049 (slightly more with tax increases, etc.) will be the cost of a school lunch by then.

And then of course the #1 con to going with longer term mortgages is all the extra money you pay up due to higher interest rates and time! Which again as we showed last week was not tiny!

The idea of having a bulk of your money tied up in your home was another oft-cited con, rather than investing it into more income-generating assets. In fact, out of all articles passed to me over the past couple of weeks, this one here was the most popular and covered just that (among other things):

11 Great Reasons to Carry a Big, Long Mortgage

Now personally I LIKE having some money poured into the house as we are not diversified at ALL, assets wise (almost all of our money is in the market!), but I can see where this isn’t optimal for those who want to maximize every dollar.

And apparently I’m not as much of a maximizer as I thought! ;)

At any rate, huge thanks again for all your emails and messages y’all sent over, and I’ll continue to keep you posted as we carry on here… Though until we actually FIND A HOUSE none of this really matters, does it? Haha…

I’d like to leave you with some of my favorite comments that I tagged in hopes it helps you in your future home buying journey too…

Never only one answer to this stuff, but the more opinions you hear the closer it usually gets you to finalizing your own! So thanks again for always sharing your thoughts with us! 👍👍

j. money signature

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I had a 15 year and was loving how fast it was going down. Then came the cancer diagnosis and stopped working. I quickly refi-ed to 30 yrs (from 3.33% to 3.75%) while i still qualified. Accelerated payments will have it paid off in 15-20yrs or sooner.

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MONEY TODAY IS WORTH MORE THAN MONEY TOMORROW. This is the one that convinced me. Mortgage payments that were modest but sizable 30 years ago are laughably tiny today. Inflation is a beast.

It means in the years to come if I’m not doing any stupid refinancing (and I am not) and our professional lives remain stable (income doesn’t even have to rise) we can swing the payment and it gets easier to manage to the point of being negligible.

While it gives a lot of people juice to say “I own my home outright” you can’t eat your walls even if they drive up NW so meh…

-Bailey

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Hi J$

I would recommend the 30 year term simply because you do not know what is around the corner.

Two years into my first home loan I was made redundant and nearly lost my house (2011). Two and a half years later (mid 2013), when I was just starting to feel that I was back on my feet, I was diagnosed with an aggressive B cell lymphoma. Again, I almost lost my house while battling cancer and unable to work with the physical consequences of chemo. Three years later (2016), in remission, and in a job I was loving, I was diagnosed with a cardiac issue as a consequence of the chemo that meant I was not longer able to drive. While that crimped my lifestyle, I was no longer able to manage my house and downsized in a buyers market, just able to clear the mortgage and put down 20% on a new place.

Please seriously consider the longer term mortgage, and if you have the capacity, pay it off faster. It is a safety net that you don’t you will need until you do.

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Hi J Money,

If you go for 15 years, you would be in the mindset of paying it off as early as possible. Meaning that it would be priority no# 1. Owning your own house would be such a relief, knowing that no matter what happens to your investments (or your job), you always have a roof over your head. If you have it set at 30 years, the loan may suddenly drop to priority no#2 or no#3.

The Working At Home Man

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Everyone has a strong opinion on this and mine surely doesn’t matter as much as yours or your wife’s, but we had the same discussions and ended up with a solid compromise.

I wanted 15, wife wanted 30 for “just in case.” We ended up with what I consider a win for both sides. My salary is high enough and savings high enough we were never going to run in to problems if work suddenly ended, but wanted to make sure we still invested heavily. Safety is number one for my wife and investing is number one for me.

We went with 30 just in case for my wife’s sanity which is more important than paying off a house early since the marriage is more important than 2×4’s and drywall. Then I took the first principle payment and doubled it the first year but then the second year tripled it because an extra $300 in savings wasn’t going to do much since everything else was maxed out.

So instead of the basic $1,000 payment for 30 years, it was $1,333 the first year and $1,667 onward. We had it on auto-pay so I couldn’t decide month to month to cheat. House paid off in less than 10 years (luckily ran in to 10 awesome years at work and with the market) and all retirement accounts fully funded as well. We all win!

– Lance

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I commented on the post but wanted to share one approach I’ve taken w/ our 30……. I have an iCal reminder every Friday to pay $50 towards the principal. Every Friday I knock out $50 principal, it’s painless, and will make a big impact in the long haul.

@DavidDamron

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Jay, here’s my best advice (free and worth every penny). :D I’d take the 30-year mortgage in your position. Your income fluctuates, which makes life less certain, and you have three kids, which makes life less certain…

Also, I would get an umbrella policy for a million dollars–your approximate net worth. For two or three hundred dollars a year, you get the peace of mind that if something happens on your property or with your car and someone sues you, that policy stands between the courts and your actual hard-earned money to hopefully absorb whatever damages are awarded.

– Jessy

[EDITOR’S NOTE: I’ve Got 99 Problems but a *Million Dollar Umbrella Insurance Policy* Ain’t One ;)]

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Everyone claims they’ll pay a 30 yr down like a 15 but they never follow through, most never even make an extra payment. Lack of financial discipline is a HUGE issue in America & the 30 yr is an excuse to keep poor spending habits. Ive seen it for 10+ yrs as a financial planner.

@rhck3

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I use the direct deposit benefit at my company to make a recurring weekly payment against my mortgage. Since it’s automated, I don’t have to think about it & really don’t miss the money. I figure by doing this, I will be able to shave off 2.5 – 3 years on my mortgage.

-MK

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15 for personal residence and 30 for investment property.

@CapturingCents

{ 27 comments… read them below or add one }

1 LeeAnne April 25, 2019 at 6:54 am

Congrats on making the decision – I’m sure it wasn’t easy! I feel there really isn’t a “wrong” answer and you have to go with what feels best for you. I’m also confident that you will work on paying it off sooner than 30 years. That’s the approach I’m taking – it was hard at first parting with that extra money every month but after a couple of years it is just a standard bill and part of the budget. Plus it makes me happy to see the mortgage loan value decrease faster. Now the next part – finding the perfect home! Wishing you and the family all the best on this adventure!

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2 J. Money April 25, 2019 at 9:47 am

Thanks LeeAnne! Glad you’re finding it easier to pay down over time :)

I think a trick that’ll help us will be to continue to apply our current $2,300/mo in rent right to the mortgage no matter what it ends up being later. And by going with a 30 and sticking to our $350k’ish budget it should mean there’s a healthy difference so we won’t even feel any pain! :)

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3 Bryan April 25, 2019 at 8:06 am

“Everyone claims they’ll pay a 30 yr down like a 15 but they never follow through, most never even make an extra payment. Lack of financial discipline is a HUGE issue in America & the 30 yr is an excuse to keep poor spending habits. Ive seen it for 10+ yrs as a financial planner.”

Guess I’m the exception. Took a 30 year and at the end of this year it will be paid in 6. But then again, I read J Money and my financial stubble has grown into a tidy Money Mustache ;-)

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4 J. Money April 25, 2019 at 9:47 am

Awww yeahh…..

Now you gotta go for that money BEARD!!

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5 Adam April 25, 2019 at 8:34 am

I’m with LeeAnne — you can’t go wrong either way, and obviously you’ve got the financial discipline to keep a 30-year mortgage from eating your face off in interest charges. Here’s hoping you find the place you want at an agreeable price! No mean feat around DC…

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6 Paul April 25, 2019 at 9:47 am

Agreed, my house is very much average, I live in suburban Maryland close to DC (45 minutes or so)I paid very close to $600k. I consider that decent for the area, but a rip off if you look nationally. I’m sure this same house would be $200k in an Atlanta suburb.

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7 J. Money April 25, 2019 at 9:52 am

Haha yup…

Even more reason to get farther away from DC for us… :)

We don’t even enjoy the overpriced drinks and party scene there anymore as parents – nothing left keeping us here! (HAH!)

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8 Adam April 25, 2019 at 11:00 am

I hear that! Our home two miles from the DC line has probably doubled in value since late 2010 when we bought it. Unfortunately, we adore our neighborhood and have the best neighbors we could hope for.

This is a problem because if we sold our house we could push our FIRE date up from late 2030 to probably late 2025. Do we want to work an extra five years — more than twenty thousand hours, between I and my wife — for the sake of great neighbors and a place we love? Probably. But the choice gets harder and harder as values skyrocket, and the Millennial Revolution minimalist perma-travel option becomes much more intriguing…

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9 J. Money April 26, 2019 at 7:50 am

That’s a good problem to have at least!! You win either way! :)

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10 Paul April 25, 2019 at 9:43 am

So, I’ll say this, amortization is one of the greatest tricks every pulled on us by banks. Initially I took an FHA loan, put 3.5% down and aggressively paid for 5 years to get my LTV to under 78%, I managed to do it, but just barely. A $600k mortgage is no joke, and FHA Mortgage Insurance is a killer, I was paying like $570 a month to mortgage insurance that is now gone thanks to 5 years of toiling (all of this was before I really even knew about FI or really anything about anything, so it is what it is). Now that stain on my reputation is gone, I really don’t feel like paying extra, so much effort, for a delayed payout 15 years from now. I mean its not like paying extra affects your cash flow for a very long time. I feel my energy is best placed in building a taxable investment account so that I technically have the cash to pay off my house if I so desire. I feel like that would give me the same sense of freedom or maybe Ill start a franchise of some sort, and build something income generating… who knows…but my point is having the cash frees you up to do things in life that are important to you, if you put hat money into your house then you ant touch paying interest on something like a heloc… not ideal if you plan on making moves in life.

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11 J. Money April 25, 2019 at 9:56 am

That was a big message a lot of people threw my way to convince me to stick with a 30 instead… Not that it was the deciding factor as the diversification is great for me since all our money is in investments, but I do know how often (and extreme) I tend to change my mind over the years. So figured this was probably a much safer bet, and if we end up paying it off in 5 year – great! – but if it takes us the original 15, then that’s okay too. It was really the *freedom* of it all that won me over in the end, not unlike the entire point of FI itself :)

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12 Joe April 25, 2019 at 10:04 am

Great choice. You’ll have more flexibility with a longer loan. I’m sure you’re disciplined enough to make extra payments. Good luck finding the right house.

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13 J. Money April 26, 2019 at 7:50 am

Thanks man – I’m hoping so!

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14 Rich E Rich April 25, 2019 at 11:13 am

Check out this spreadsheet:

http://www.vertex42.com/Calculators/home-mortgage-calculator.html

You simply plug in your loan amount, interest rate, and the term length of the loan. There is an ability to add extra payments and see the effect the payment has.

I think the best part is the right side of the spreadsheet where it calculates the total interest and principle paid at year X. I see there is a lot of chatter about how the loan amount fits into the monthly view of your financial picture. Fast forward X years and see where this 15/30 year decision will puts you.

I also saw some chatter about mortgage interest being deductible. Note that the standard deduction increased in 2018 from $12k to $24k. What that means is that you automatically get a $24k deduction. If you mortgage interest and other deductions don’t exceed $24k, you are not going to benefit from deducting the higher mortgage interest you pay on a 30 year mortgage. As always, consult a professional.

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15 Torrie April 25, 2019 at 12:19 pm

Loved reading all the comments! I agree with what a lot of people say about the importance of automation. If you have to choose to send in extra payments toward principal every month, you might find excuses not to, but if you make automatic contributions, you don’t even think about it. We don’t have a ton of extra income right now (we’re a single-income family, as I stay at home with our kids), but we started out paying just an extra $8.40 on the loan every month to make it a more even number (1160). Then, when we got our next raise, we added $40 on and made it an even easier number to remember (1200). As we get more raises, we’ll keep just adding on “nice, even numbers” to make it easier to remember to budget for that amount, and when we get windfalls (like tax returns), we just put some of that money towards it as we go. That way, we get the flexibility of not doing the extreme hustle, but we’re also paying it off faster (and we’ll increase it every year).

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16 J. Money April 26, 2019 at 7:51 am

YES!!!

The “rounding up” trick – works like a charm every time!!

We’ll be doing the same!! :)

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17 Grokking Money April 25, 2019 at 12:56 pm

Hi J Money,

I agree with your idea of going with a 30 year mortgage but paying it down like a 15 year. This is exactly what my friend is doing. He put it in a different way. He said my rent will be fixed for the next 30 years (how cool is that :D) and I will finally get to own this house and it’s value would have appreciated too to make up for any extra money I paid in interest!

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18 J. Money April 26, 2019 at 7:52 am

Haha… that does sound good when you put it that way :)

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19 DJ April 25, 2019 at 1:21 pm

Congrats on making a decision! We went the 30 year route as well. Having that extra money each month lets us put money towards our other goals and protects us from future income changes as well (heaven forbid).

So glad everyone came through for you on the advice! Gotta love the interwebs!!

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20 J. Money April 26, 2019 at 7:54 am

Yeah!!! Such a great community here in the PF world – what did we do before the interent???!

(oh right – we never talked about it openly because it was taboo ¯\_(ツ)_/¯ )

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21 Cashflow Cop April 26, 2019 at 2:12 am

Anyone else and I’d be like…hmmmm.

For someone who has been blogging as long as you have; now that takes MEGA discipline.

30 year paid off in 15? Piece of cake for you. Challenge yourself and go for 5!

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22 J. Money April 26, 2019 at 7:54 am

CHALLENGE ACCEPTED.

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23 LG April 26, 2019 at 10:26 am

People buy cars priced at around R1, 500,000 and pay it over 5 years. Mortgage loan must be paid over five years. If vehicle finance is so affordable.

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24 Retiree - Yippee April 29, 2019 at 9:34 am

When we owned our last home, one of us wanted to get a $100k heloc (in case kids wanted loans for down payments – which they did – and paid back!), and it took a while to convince the other. When we retired and bought a condo that needed a total upgrade, we maxed out the heloc and were able to rehab the condo before moving in. (Of course, we got less cash when the house sold!) We now have a 30 year mortgage on which we pay extra every month – and we are very happy!

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25 J. Money May 1, 2019 at 6:28 pm

You had me at “paid back!” haha…

You raised some diligent kids! :)

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26 Greenbacks Magnet May 14, 2019 at 11:51 am

Looks good to me.

You have definitely done your homework. Putting down 20% makes all the difference. NO PMI!!! Put that money towards paying off the principal instead of paying mortgage insurance. That’s the way to go for sure.

Navy Federal also has loans with NO PMI just an FYI

xoxo, Miriam

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27 J. Money May 14, 2019 at 1:55 pm

Totally! PMI blows…

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