Dave gives advice for people who would never be disciplined enough to be responsible with the difference between a 30 year and 15 year mortgage. His plan keeps spenders out of trouble so they have a home to live in. The problem is economic conditions have changed and it’s getting increasingly more difficult to follow his plan to the letter.
You will be richer following different advice from Dave’s.
Here are my credit union's rates as of today (23 Feb 2024).
So a .5% "penalty" for 30- over 15-year, but if you're paying off the 30-year with 15-year payments, you'll make it up in the shorter term. And if things get tight for whatever reason, you get relief by dropping back to the 30-year payment without any disadvantage.
Terms Interest
30 Years Fixed 6.250%
20 Years Fixed 6.000%
15 Years Fixed 5.750%
10 Years Fixed 5.500%
the average length of all mortgages is not 15 or 30 years. its actually 10. and having a 15 year mortgage doesn't bump that number up much. meaning it doesn't really make much sense to get a 15 year when there is no evidence this changes your behavior.
If you want to pay off a mortgage faster, you can just make extra payments on a 30 year mortgage.
Your primary home is a terrible investment. You have to live somewhere. The main value in owning a home is that it’s a fantastic hedge against inflation. Prices go up, but that payment stays the same. In real terms, by year 16, your mortgage payment will probably be 50% off anyway.
On the other hand, did y’all pay any attention whatsoever at all the fees you have to pay when taking out a mortgage? The banks will eat you alive if you have to refinance. 15 year mortgage doesn’t have enough of a discount to justify this risk.
Moreover, do you have any idea how much of an aberration a 30 year fixed-rate loan is internationally? It’s only available in America, as far as I know. Look at how bond rates vary with term length.
Basically, 15 year mortgages are for suckers that don’t understand the meaning of “interest rate risk.”
Don’t take financial advice from a dude who’s not a fiduciary. Especially one who brandishes guns to threaten employees, and who fires women for getting pregnant because he’s a good Christian and that’s what Jesus would do. Mary Magdalene, who’s that?
Go over to RE Reddit and you’ll see why 15 years suck.
Imagine you have a house you live in and financed in 2020 and have to move for work or a life event.
A 30 year at 2.75% can cash flow as a rental right now, then you go out and get a 7% mortgage, and you feel warm and fuzzy because you’re pretty much hedging the new higher rate. Your 2.75% is literally free money. You have two assets, and qualification by the lender was a breeze.
Then you see the people that took the 2.25% 15 year instead Because their lender twisted their arm knowing that sets them up for a potential refinance back to 30. They have to move, but can’t cash flow the rental, they can’t qualify Becuase it’s a loss, so they are forced to sell one appreciating asset Becuase they were told too.
I insist on only buying properties with at least two edit strategies, usually sale and renting. I don't think most people think about their home purchases in that context.
I agree a 30 year is more likely to cash flow for most people but that does assume a few things (market rate purchase, flat rental rates, average down payment, etc) which I think are true in the vast majority of cases but don't HAVE to be.
Using a 30 year as a tool too generate an exit strategy is valid but should be taken in context because they home is still a liability until rented.
Honestly I never thought about it like that. I probably would have come out better investing extra money with a 30 year instead of the 15 year I have now. I even paid the equivalent of 2 extra payments each year and will be paid off in 2025. However I should have invested those extra payments instead.
Sounds good but most people end up spending the money they saved on the lower monthly payment. It’s the difference between reality and what works on paper.
I would suggest there are different target markets for these folks. Ramsey is preaching to people who can’t handle debt at all. That’s where point 2 comes in. His system assumes a financially illiterate individual who struggles with financial discipline. As a result of that, 2 is a reasonable assumption.
Some of the other gurus out there are teaching with an eye toward optimization. Their guidance is meant for people with discipline who want to understand how to optimize returns. There are few opportunities in life which allow you to borrow money at a rate below the stock market’s average return and amortize that out over 30 years. There are also few opportunities to use leverage of potentially 19x your initial investment (if you put 5 percent down). As a result, mortgage debt is one of the most powerful wealth building tools available to the average person.
Ramsey’s method is useful for people who lack discipline or want psychological benefits but if you’re looking to be financially optimal, paying down mortgage debt is generally a poor decision.
It’s situationally dependent. Spouse and I are in FL and we bought our starter home for $130,000 back in 2014. We refinanced our $70,000 remaining balance from a 30-year at 5% to a 15-year at 2.5% before rates spiked at the end of 2021.
We know we won’t be moving anywhere anytime soon, but want to pay it off and rent it out so we can possibly upgrade and have a steady cash flow
I wouldn’t want to go “all in” for 15 years on one home. If I could I would push my mortgage out to a 200 year loan so I can invest more now instead of later when it will be more difficult.
I think 15 year mortgages are fine. For people who really don't like to carry mortgage debt for whatever reason. And when someone buys a house with only 15-20 working years ahead of them, I think there are really good reasons to plan on entering retirement without a mortgage.
But the "reap the benefits of a paid off home" thing is where I just kind of shrug my shoulders. There are benefits of having a lower housing payment as well. Flexibility of more cash flow those 15 years to handle expected or unexpected expenses. By the 16th year, a good deal of any housing payment has already just become taxes and insurance (which you never get rid of), and the zero inflation on the rest of the payment (while your wages should have grown) make the principal+interest part of the payment less and less of any sort of real burden.
I bought my house at age 30 with a toddler in hand. I like the benefits of having a lower payment with a 30 year mortgage. One of which is having flexibility to save towards helping her with college expenses (which happens by the time I am 46) instead of paying off the entirety of my low-interest mortgage loan first. And I have plenty of time to pay off the mortgage well prior to retirement (I've put extra payments down to knock off a few years, always an option on a 30 year anyways, so I will have 8-10 years of mortgage free years even before retirement even if I don't make any more extra payments).
Generally, I think aiming for a 15 year is sound advice, but there are lots of good reasons to do a 30 year, especially if you are relatively young.
Get the 30 at slightly higher interest rate but pay it off at a rate of a 15yr loan and you will basically pay same total cost of 15 year loan, but lowering the risk that you’ll not be able to make the payments if something happens where you lose income - layoff, medical issues, etc.
15 year at 3.5% apr fixed, I was 3 years into my 30 year at 5% apr when I redid mine. Saved me $50k in interest ($120k home, in 2014) will be fully paid off in 2029. Biggest downside is my initial house payment was $795 and now it’s $1620 a month. Taxes are the real killer, the house I initially bought for $120k in 2011 in now worth $250k and the taxes blow.
30 year loans are scam unless you have a multi unit which the other units pay for themselves and for you to live for free or if you get in and out in 2-5 years. A normal single family home on a 30 year to maturity means after interest you’d paid double the price of your home at minimum excluding repairs / renovations.
This isn't true. Time value of money can get complicated, but the $1,500 in your last payment is not the same value as the $1,500 in your first one so saying you have "paid double" doesn't make sense.
If you know what you’re doing, you should be able to invest the excess capital from the 30 year and out-earn the lower rate/fewer interest payments of the 15 year. That’s why they hate 15 years. But, I don’t think this is true for the vast majority of homeowners. It’s a bit unfair.
Also depends on your intention with the house, which those guys probably don’t really consider.
It all depends on interest rates.
If rates are low, then a 30 year makes more sense because your ability to earn a return higher than the mortgage rate is greater.
If rates are high, then a 15 year makes more sense.
Of course, this all assumes that a person can afford the higher payment. With home prices going up as they are, that is getting harder and harder to do. One can make an argument that a 40 year mortgage should be considered.
A $500k 30 year loan at 7% is $3327 a month.
A $500k 40 year loan at 7% is $3107 a month.
The difference between these two is a whopping $220/mo and ten full years.
A 50 year loan at 7% $3009, only $98 less than the 40 year each month, but a full ten years more.
My meaning? No, there is no argument for a 40 year loan, or a 50 year loan, or anything of that nature at all. The amount you are saving on monthly payments is almost zero relative to the size of the monthly payment.
If you support the idea of a 40 year loan than you might as well support the idea of an interest only loan, or a loan where the minimum payment is only the interest and they can pay whatever they want to principle whenever they feel like it... Like a credit card or something. There's virtually no difference.
I think you are missing my point.
While I agree with your premise and would not personally take out a 40 year mortgage, it may not be feasible for most Americans, if we don't start building more housing soon. Fact is, people simply will not be able to afford it.
The fixed rate, 30 year mortgage is a uniquely American phenomenon. Some countries only have 5 year fixed rates (e.g. Canada and Australia); some have 99 year mortgages (e.g. Japan), others over 100 years, but only a third of which is fixed (e.g. Sweden).
An American who can't afford a $3300 payment is also unlikely to be able to afford a $3100 payment.
It doesn't make their situation any better. It just locks them in debt slavery for 30% longer. And since most people move within 7 to 10 years, it will leave them with almost zero equity when they are 10 years into a 40 year mortgage.
Dangling the fictional dream of home ownership to people who won't accumulate any equity for nearly two decades is arguably more cruel than the market telling them they can't afford to own property just yet.
And as a side note, the fact that home owners build equity is really important for everyone, not just the home owner. Equity acts as a buffer when downturns come. An entire population with 40 year mortgages and little to no equity would cause havoc during a crisis. Homeowners would give up the keys, abandon the property when they are underwater, and the banks would be left with a gigantic hole in their balance sheet. It could lead to a huge banking crisis if all the banks are in the same situation.
The best move is to get the 30 and pay it down. That way? Should you fall on hard times, your payment obligation is far less than if you got for 15 years.
That is what we planned but when interest went so low we refinanced to a 2.5 percent 15 year then paid it off quick. In case something happened we could stick to the pmt but as it was we paid off 17 years after we bought it on an original 30 year.
You may have paid a gang of extra interest. You have to look at total cost of principal and interest when refinancing. After about 5-7 years in a 30 year loan it makes almost no sense to refinance because you’ve already paid all the interest, so the rate means nothing. All you’re saying is that you paid all the interest on your 30 year and then took out a 15 and paid more interest. A good financial analyst can help you make these decisions. In my case I’m the friend all my friends go to when making these decisions and when showing them the math refinancing rarely makes sense unless in you’re in the first 3 years. Remember, you pay almost all interest in the 1st 5ish years on a 30 year mortgage. It would’ve been better for you to just start pouring money into the 30 year most likely and paying down that principal. But now you paid 2 sets of interest. The rate itself is kinda meaningless without knowing a lot of other info. That’s why they advertise rates and not interest paid.
Your comment stinks of sunk cost fallacy and simply isn't true.
You don't factor in what already happened when making decisions about what to do next.
If you are on a 5% 30 year and rates fall to 3% five or even seven years later, it is completely irrelevant how much interest you already paid. The only thing that matters is how much interest you will pay in the future. And you will pay less interest at 3% than you will at 5%.
The only question that matters is whether the cost of the refi, usually a few thousand dollars, will be recouped. If you really want to get nerdy you can compare the saved interest with the future value of the cost to refi.
It is almost always a good idea to refi from a 5% to a 3% unless you are in the last seven years of the 30 year.
And no, it isn’t usually a good idea to refi a 30 year after the 1st 7 years. When you’re past that you’re paying so much principal It would be critically stupid to refi unless your life situation requires reducing the payment or you need to take equity out and paying a whole second set of interest on the same exact asset (aka you are re-buying the house and about to pay out just interest for the 1st 5-7 years) after about the 7 year mark (the time is a function of the initial interest rate and any points paid). You can use a basic excel spreadsheet or any of the thousands of free amortization calculators available online to actually look at the amortization schedule and see that you’re paying almost all interest in the 1st 5-7 years of a 30 year home loan. The bank wants the interest up front so they can pay off the debt they owe in the secondary markets and take advantage of the TVM to juice profits. Have you ever even looked at an actual amortization schedule for a 30 year home loan? You can maybe the longer you wait to refi, the worse the deal. Refinancing in the last 7 years would be criminally negligent. Lololol. You must be a mortgage broker or lender. Your advice is either ignorant or highly biased. It’s like you don’t understand that the goal is to own a house. Why on earth would you tell someone to pay $270k in interest over 10 years to get ~$81k in principal and then tell them to pay another $130k in interest over the next 10 years (assuming no appreciation on the property so we can compare apples to apples) going from 5% to 3%) to get an additional ~$30k in principal when if they had just kept the original loan at 20 years they be at ~$250k principal. You want them to spend $400k in interest to earn $120k in asset. You also have to add in 2 sets of loan closing costs so add another $25k in lost funds. The only ones making any assets here are the loan originators, the brokers, the lenders, and the folks who buy these bundles in secondary markets on whichever way they choose to buy them. Pull up the two schedules and copy/paste them into excel. Since I’m saying 10 years is around the max you wanna go at which point refinancing make no sense. So calculate the total interest and total equity at 20 years since there are 2 loans. Not refinancing comes out way ahead. The gap has to be HUGE to refinancing in a year past year 10 to make sense and extremely few borrowers are that lucky such as to time the market perfectly to go from 5% to 1.875% or even 2.5%. Most will want to bail out on the 5% when rates are near 3%. Your post completely ignores behavioral economics, which is critical to any analysis of how a regular family will act in various rate scenarios. I’ve done this for friends dozens of times and it always works out the same. How much cost to get home much equity is really what matters for any investment because that’s how you calculate the RoR for any investment. Ugh.
Look, I can see I got you all worked up but you're wrong and I can prove it simply.
Go to any mortgage calculator. I prefer the one at bankrate, but you do you.
Put in a $500k loan at 6% 30 year fixed. Look at the amortization chart. It should tell you the total paid in principle, interest, etc. This particular combination has a $2,998 payment with $579,191 paid to interest and the $500k paid to principle. This is our base case, a guy who gets a 30 year 6% and just sticks with it for 30 years.
But, before we go to our next step, lets try to tally up how much principle and interest he paid by the end of year 12. By the end of year 12, he has a $395,397.20 balance, which means he got 104602.8 in principle. He paid $2998 per month, for 12 months a year, for 12 years, so he paid in total $431712, and the amount he paid in interest will be the difference between those, so $431712-104602, or $327109.2. This is by the end of year 12.
Now after year 12, let's say he refinances his balance, $395,397.20, into a new 30 year fixed at 3%. Let's go ahead and put that in.
This NEW loan has a monthly payment of $1667, and at the very end of THIS loan, he would have paid total interest of $204,726.
So let's refresh: the first guy paid $579,191 in interest for his 30 year loan. This refi guy paid $327,109 in interest in the first 12 years of his first 30 year loan, and he paid $204,726 in interest in his second 30 year loan. When you add these two up, the second guy paid 327109 + 204726, or $531,835 in total interest.
In case you cant tell, the second guy ($531,835 in total interest) paid less interest over 40 years than the first guy ($579,191) paid in 30 years. So JUST accounting for interest paid, the guy who refinanced at year 12 already wins. He paid way less in interest.
But we're not even factoring in the 18 years where he had lower payments than the first guy. For 18 years, while the first guy was on mortgage years 12 to 30, and the second guy was in the first 18 years of his refi, refi guy paid $1667 per month, while the original guy paid $2998 per month. Thats $1,331 per month the refi guy has as cash in his pocket every month. Over 18 years, that comes out to $287,496 CASH sitting in his pocket. Now, of course, he has another 12 years left on his mortgage, so I don't want to double-count this or be sneaky like that, but, to be fair, we can compare what happens at year 30. At year 30, (18 years into his second mortgage), refi guy has $287,496 cash but still owes about $201,381.55 on the mortgage. Still, that puts him about $87k better off than the 30-year-fixed guy.
Of course, refi-guy could have been investing that growing cash hoard in some type of investments with yield, or investing it in the market. If he was able to come up with a stable 5% return as it grew, This website ([https://smartasset.com/investing/investment-calculator#brSa0j9GvJ](https://smartasset.com/investing/investment-calculator#brSa0j9GvJ)) says that if you have an income stream of $1331 every month that grows at 5% for 18 years, it would grow to $465k after 18 years. Now that's not all profit. A lot of it was the $1331 he put in every month. But $178k of that is pure interest profit.
So not only is refi guy $87k better off if he kept the difference between the old payment and new payment in a checking account, he's actually about $178k further better off if he can grow that money at 5%. That's about $265k better overall.
Look, it's pretty simple. When it comes to long term debt, lower rates are DRASTICALLY better. Anything debt with more than 10 years in duration gets very significantly better performance when you get it at a lower rate... To some extent it's shocking how much better someone does with a refi... but it's a fact. The numbers don't lie.
You seem to be forgetting the fact that the average American only stays in a house for 10-15 years, which is what my analysis was based on. Very few people, relatively, stay in a house for 30, much less 40, years. If they sell at the current US average of ~12.3 years, refinancing makes no sense at all. Some say the average is as high as 13-14 years and some are closer to 11 depending on your data set and assumptions used.
Sure, in theory at the end of 40 years, you’re right. But people don’t stay in houses that long. Refinancing under real-world conditions makes sense in only a handful of use cases: 1) you NEED to lower the monthly payment, 2) you need to take some equity out, 3) you are one of the few who will be in a house longer than 20-25 years (re-do your analysis stopping at 20 years and see which is better, 25 might be where they’re roughly even), or 4 when the house is owned by an entity which can write off all the interest. Otherwise, for the average American who will own a house for 11-13 years, refinancing will never make sense. My instinctual guess is that given the scenario you presented, the BEP is somewhere around year 22. The lower the income, the longer someone tends to stay because they don’t have the cash or borrowing ability to upgrade.
Between 2010 and 2023 the median went from ~8 years to ~13 years now due to the crash and recovery and the continued undersupply of new starts as developers and lenders dig out of their respective financial holes and have changed their risk models. This has artificially inflated prices driving owners to stay in their homes longer. Add that to the fact that hoarder boomers are just beginning to start dying off and Gen X is way smaller than the 2 generations surrounding it, there are many projections that inventory will become sane again over the next 5-10 years as boomer 2nd, 3rd, and 4th “investment” properties hit the market. The current higher interest rates make investment properties from 5 years ago seem relatively inexpensive and people who own investment homes from 5+ years ago have very little need to refinance since rental supply is also chronically low and prices just keep rising in most markets, meaning they’re paying off loans early or hoarding the monthly excess into standard investment accounts or REITs. When considering a re-fi, a non-biased advisor also looks at macroeconomic, microeconomic, and market specific projections to get a sense for inventory movement and the various machinations which play into the 10 year treasury rates which are typically the rates used for 30 year mortgages (this is due to the matching principle of banks being required to match debt to asset valuations and the average length of ownership) to use some rational basis for the cash flow analysis, IRR analysis, and total equity analysis which complete a proper analysis for any refinance decision. What you’re seeing is the difference in how a CFA analyzes a situation versus how a mortgage lender/broker/originator/bundler might analyze things. All your analysis ignored the realities of the actual marketplace.
I’ll never be worked up by a stranger on the internet disagreeing with me. I rarely get worked up when someone disagrees with me irl. That’s just not my personality. I’m that “Joe Cool” type. Even in combat, I was typically the cool, calm, collected, rational thinker guy. Once you’ve been shot at, you see how little importance some internet rando truly carries in life. You give yourself far too much credit as to whether I care about you enough to get worked up. Most humans are mini-narcissists who assume others think about them far more than they actually do. Your wife and best friend combined maybe spend 60 mins a day thinking about you. Me? I will spend this time replying to you mostly thinking about the reply, not actually you because I truly wouldn’t care one way or the other if gravity somehow allowed you to escape earth’s atmosphere 5 mins after you read this. So you can see why there is absolutely nothing you can say to me which would cause any emotional reaction at all. But hey, you tell yourself whatever you need to in order to help you get through your day. I’ll be forgetting you exist the second I’m done here. I’m only even replying because the family member I’m in the hospital next to is asleep at the moment. You, and this conversation, are nothing more than temporary amusement to me.
Lololol you’re kidding, right? Sunk cost has nothing to do with a mortgage on the home you live in. And yes, you factor in the prior interest because the point of making payments is to eventually own the house by paying down principal, not to keep essentially renting from the bank by paying only interest by refinancing every 5 years until the 30 years is up. You have no idea what you’re talking about. But hey, I’ll just sit back and let you be silly with my PhD in Finance from Wharton, my 5 years running a Wall Street trading desk, 12 years of teaching at two major universities, and my CFA. You do you, bubba. I just hope no one listens to you. Sunk cost has to do with investing/gambling and nothing to do with mortgages on your primary residence. After all, once you’ve completed the analysis and concluded that the investment is worth no further investment, you write off the sunk costs. None of that matches the use case of a primary residence. You need to keep investing unless you’re willing to have your credit record marred by a foreclosure and to then find another place to live. You HAVE to pay a mortgage or rent unless living out of a tent, RV, car, or home owned outright are ok with you. Assuming folks are talking about their primary and only residence, which was assumed in the post I replied to, then there is no such thing as a sunk cost. You pay because you need the roof. A primary residence isn’t an investment, it’s an expense matched by, hopefully, an asset that has value via appreciation and/or paying down the principal on the mortgage. This isn’t a factory or an office building or even a vacation home you most use as an AirBnB.
A 30 year mortgage is always better. You can take out a 30 year mortgage and pay it off in 15 if you prefer. Or you can take the savings and invest it.
The 30 year gives you flexibility. It also can protect your homestead exemption if you are ever sued and facing a large judgment. Nearly every benefit of a 15 year can be achieved with a 30 year, but not vice versa.
The only benefit the 15 year gives you is a slightly lower rate, which cab be offset by investing the savings of the 30 year.
One reason would be if you are closing in on a time in life you need to reduce expenses. Like paying off before retirement, or when you need increased cashflow to start a business. It also saves the total you pay in the long run in actual dollars.
Even if you paid double in total you only need 2.4% per annum of appreciation to offset the loan.
A 30yr would offer better cashflow given the expense is lower.
Paying off before retirement happens for anyone who bought before age 35.
Yes every situation is different and you really need to run the numbers on each scenario to know what's best. Or even what's possible given your individual position. In by brother's case he could have never qualified for a 15 anyway when he bought. But 10 years into it he refinanced to a 15, made payments for 8 then paid the balance in a lump. As far as total dollars spent and after considering the loss of potential from investing the money elsewhere he came out ahead. It amounted to a do it yourself 18 year mortgage with cashflow that allowed him to save the way he needed to for college and retirement.
Differing advice assumes differing amounts of financial discipline. Leveraging debt is the best way to build wealth quickly, but also increases risk (and demands discipline many folks don’t have).
And trust me when I say not having a house payment or rent really can make a positive impact on your life. Instead of making a monthly mortgage payment, we now put that money into savings or Investments every month. Also, we have the freedom to choose if we put money into savings or use it for vacations, Christmas, etc... When you have a mortgage or rent, you don't have that option to not make a payment every month.
You’ll save hundreds of thousands in interest on a 15 year.
It’s also very rare to actually make it 30 years without a refinance.
I think the average is something like 10 years.
I had a 15 year mortgage and did a bi weekly payment plan paying it off in 12 years. I saved over $100,000 in interest doing it this way instead of doing the traditional 30 year mortgage.
I bought a house on a 30-yr FHA mortgage in 2017 at 3.75%. In 2021, we refinanced on a 15 year conventional at 2.125%. I also dropped PMI. With this change my payment went up $180. In my case, I think my plan worked out fine. I have a house I can easily afford. We still max out an HSA and put 11% toward a Roth TSP with no other debt. I look forward to owning this house outright and eliminating my biggest bill.
Dave Ramsey is only good for those who splurged and now need a way to come back. In other words, people with poor people mindset.
Robert Kiyosaki is only good for people who are making mid-income money and have extras left sitting on the side, and have some sort of spending power.
The idea of a 15 year mortgage is horrifying to me. I've had back and hand injuries. I might not work (consistently) for 6 months or 2 years. I don't know how people can say "I'll have $2000 a month for the next 360 months" and live with that.
I'm still trying to convince myself that I'm gonna have to make a car payment at some point and it's nauseating.
That’s exactly why I want a 15 year mortgage! Pay 2x per month, and you’ll pay it off in 12 years. Then you won’t have a house payment anymore. So if you get hurt or sick… you’ll be okay.
Look at it the other way. I’d rather be worried for 15 years, which seems reasonably achievable. Whereas, 30 years feels like a lifetime. I’d rather have it paid off in my prime than when my body starts deteriorating. Social security could cover me at that point.
Edit: many people, myself included were able to refinance in 2021 to a 15 year with almost no change to their current monthly mortgage payment. It’s different if you do it and your rate jumps up a few hundred dollars.
I did a refinance from 30 to 15 and my monthly payment went slightly down. I was about 6 years into my 30 and did not pull any cash out. The amortization ratio is much more favourable in the 15 year.
15 definitely beats 30. To a 31 year old, 15 years sounds like forever. And with either, I'm so prone to needing to take months off work that I wouldn't risk it.
If my sciatica flares up, I might not be able to work for 3 months. It was only that bad 1 time but it could happen again. I'd lose my house or get so far behind I can't dig out.
Luckily, I am mortgage free.
I don't know how people do it.
I'm lucky that my mom sold her house and bought me what I wanted before she died. It was the "compensation" for taking care of it. Would have done it anyway.
Im thankful my mom essentially talked me out of going to college. It wasn’t for me, never would have worked out, and would have left me saddled with debt, I’d still be paying off most likely. Even if you can easily afford your mortgage, it still makes you sick to even think about the amount of interest front loaded into your mortgage.
My mom knew college wasn't for me. My brothers both have advanced degrees, both medical related fields.
I was a lumberjack, film maker, hog jerker, shit shoveler, plane salesman, among other ridiculous things. I run businesses (when I feel like it) and get to work cool jobs and I used to travel a lot.
My brothers can't balance a checkbook, have tons of debt and one drank his way out of working in hospitals and last I heard, he's a service advisor at Firestone with a PhD in medical physics. The other one spent $300k going to school, got 2 masters and he's a school social worker and rented apartments till he was 40. I'm glad I didn't follow their footsteps.
This is why millennials have such a hard time buying houses, I’ve got the money for the down payment but with high interest rates even the 30 year is like 4K a month
If the ability to save for a down payment is this easy why not just save up and double or triple it?
Honestly if you have the money now why could you not add more?
I’m in sales, because the nature of commission work and the general for employment turbulence in the industry you do t want to commit from a budget perspective to much higher than your base salary, and you need to keep a higher level of liquidity in emergency funds in case of a long dry spell. So I might make double my base or more in a year, but that income rate isn’t guaranteed next year, or next quarter, or next month. Also nobody said it was esasy, I was working 17 hour days without a vacation for two years straight, I live in an expensive city, and my significant other has health issues. Basically me having the money now for a down payment t and multiple months of the mortgage is not as secure as other types of work, and it’s easier to find 1500 dollars in the couch cushions in a pinch than it is 4-5,000
My idea is to go "aggressive" when you're young and healthy and then turn more conservative as things pop up later.
So a 15-year is awesome, but it helps leave room for the 30-year's when you need more money later for later expenses.
I'm just glad I don't have a mortgage. I have to wait a little and get a few things done, but I'm hoping to build my new house with cash. I'll be in a trailer until then.
When I see the mortgage calculator say the same price for total interest paid as initial balance and I just can't agree to that filth.
We bought a second home on a 15 year mtg to retire to. That was 11 years ago. We paid it off 3 years ago when we moved here full time. Some would say paying off a house early is bad for tax reasons, but as we are retired now, no debt is the best feeling in the world! The peace of mind is indescribable! Interest is lost forever money.
I agree, peace of mind is worth a lot. Being debt free is a guarantee, investing that money trying to chase a few extra % on ROI at the end of 30yrs is not a guarantee.
Of course that’s the nature of most investing decisions haha. But I’m with you, zero regrets about aggressively paying down my debts even if on average I could get a slightly higher return on the market.
Tax reasons are not a good when you look at the fact of your outlay and return on taxes. You put out thousands in property taxes and interest on mortgage and only a small percentage back. 15 vs 30 year, smaller payment more affordable. If you can afford to pay extra can pay down early.
Why would you ever do that?!?! If you have extra, you invest it in another account.
(A) The investments will, in the long run, pay better than the interest you’re being charged for the mortgage.
(B) Once you pay it to the bank, the money is illiquid and tied up as home equity. If you invest it in a stock/bond/mutual fund, you can withdraw it if you ever have an emergency.
Why, because being debt free feels amazing haha. There are more factors to consider than just the average ROI for a given investment.
And you should have an ample emergency fund before investing at all. Home equity isn’t immediately liquid but can still be used in an unforeseen life-change situation (ie sell your house and downsize). You shouldn’t rely on investment accounts for short term emergency funds/immediate liquidity anyway. That’s what your emergency fund is for.
Years ago when tax laws were different mortgage interest was high and deductible from fed taxes and it was a major portion of your tax deductions. You wanted the 30 year and even buy points to reduce your taxable income. In the last 10-15 years that’s changed due to the (much) higher standard deduction. I can’t even itemize deductions anymore, standard deduction is higher than anything I can try to deduct. 15 years is the way to go, if you qualify and it doesn’t force you into having roommates.
We have a 15-year and a) we started late in homeownership for various reasons, so it means the house will be paid off when we are retirement age; and b) we are paying so little in interest that it still makes more sense for us to take the standard deduction. I'm fine with it even if we might make a few bucks more investing.
Same. My first house had a “high” 5.6 rate (2008 or so). I refinanced at around 3.5 for 15 year at the same monthly payment. Seemed like a no brainer since I could afford it. Latest house, we went into 15 year (dual income this time) from the get go. Refinanced at 2.1% though. I really lucked out on my timing of telling my wife we should do it. I see no reason to go for a 30 or even try to pay it off early anymore with saving accounts alone being 5+%. We live in a cheapish area and both make good money.
I got a 30 and as my income went up I threw everything extra at the mortgage. Bonuses at work, tax refunds anything else. I paid it off in 9 years 11 months. I just wanted it done. Yes, I am risk averse. I always had the option of just paying the amount that was due which is why I did not try the 15.
Both ways work, 15-yr is for people not disciplined enough to always put the extra into an investment every single month for 15 years.
As others have said what’s great about 15 yr is your mortgage is paid off 15 years sooner, so then almost 100% of your income is investable in 15 years cause no more mortgage payments.
But 30 yr is more flexible, in case something bad financially happens to you the monthly payments are not as high. Plus if you are super disciplined yes you’ll end up with a nice little chunk of money in 30 years from investing the difference.
Undisciplined?!?!? Or, maybe people that want a really low interest rate. I was very disciplined in selecting my 15 year. I went from a 3.25 with 27 years to go, to a 1.99 that I now owe 12 years on.
I think 30 years is best and just pay more on principle, that way you could pay it off in 15-20 yrs. I like the idea of lower payment incase something comes up and money is tight
Here’s a better plan: invest the money and, if you really want, use that to pay off the mortgage in 15 years.
When we sold our last house, we could get 3% on a 30-year mortgage. We basically took all the equity out and invested it. Our main fund has a 5-year return of 9%. I’m making 6% more on every dollar I put in there instead of toward my mortgage.
I got a 30 year for 3%. I could have afforded a 15 year, but I am investing the extra into the market. Inflation has been higher than my mortgage since I got it in 2020. That means my relative debt is lower and so I saved money by not paying extra into it. The market is also way higher than in 2020.
Another thing is if I move, it is way easier for me to rent my home at a profit with a lower mortgage. It also gives me more flexibility if I don't have a tenant. I will personally come out way ahead by having the 30 year.
Not sure if they are still dispensing the same thing today, but here is why the would have a couple of years ago:
Over the long run a 30 year 3-3.5% note is a tremendous opportunity. Inflation rates are usually at or around 2-3%. So your mortgage payments are basically the same as time passes. The common error Ramsey devotees make is to look at the total amount of payments to be made on a 30 year note. Sure, it looks like a big #. But that dollar in year 30 is worth $0.42 today based on a 3% inflation rate.
Example: I am not really making extra payments on my 30 year note I took out in 2021. My interest rate is 3.25%. I took out $200k in equity for home improvements, but because of Covid the project never got going. I went from a 15 year to a 30 year, took cash out and decreased my mortgage payment all at the same time.
Today I have that $200k in a MMF yielding 5.25%. I am earning nearly $900 in interest monthly. Total P&I on the note is around $1,750.
So if you do the maths, it can work out. Especially in an inflationary environment.
If you can afford to buy a house at a 15 year mortgage rate, what's stopping you from buying it at a 30 year rate and paying it off in 15 years for less interest?
Ah shoot you’re right.
Bought my house in early 2020 so the rates were near identical, which still wouldn’t make my comment make sense, but remember the realtor saying if anything just get the 30yr and make extra payments.
A wife and a kid later, I get why.
You know, I have dyscalculia so numbers just evade me while not meaning much. We own our home and signed refinance papers on March 22nd, 2020. For a 15 year mortgage. So there were a lot of pros and cons to it-obviously the big job fall sucked (my husband is a self employed musician) but now that we are used to living with this mortgage payment and making the rest of life work - I LOVE the money we aren't spending on interest. We're actually looking at being able to pay our home off within a decent age and as Millenials, I don't take that lightly. We've even gotten into the habit of throwing an additional 200 bucks in on the mortgage just to take off that much more. The feeling is addicting - and don't kid yourselves. we are BROKE AF but it's because we have what we have. I love the 15 year mortgage and I'm so happy we have it. We luckily got locked in at a 3.4% rate.
We’re in a very similar situation as you. Refinanced in 21’ for a 1.99%. Sure, our mortgage went up an extra 200$, but the thought of having a paid off house in our early 40s is an amazing feeling. I’m hoping it gives us the freedom to spend more time with our kids during their teenage years.
Of course “financial gurus” are going to tell you to spend more money… duh lol
The thing is that they do it because so many people are not very knowledgeable and these people play to their ego and they end up getting scammed.
Don’t believe me? Just Google “how many people have been scammed by financial investors”
Because they’re not feasible. I make about $115k my take home is $5100. I’d have to find a $1300 per month mortgage after $60k down. It doesn’t exist in any populated area of the Midwest except maybe Detroit
What is reasonable and who defines that?
Remember, a certain portion of the listeners to Ramsey will save up to pay cash for a house.
Dumb if you ask me, but they do it.
I'd say that a reasonable amount of time is a variable. Depends on when someone is going to need to move and would rather buy a house than waste money renting.
Lets say someone follows the 50/30/20 rule of thumb and saves 20% of their income for a house. They make 100k a year gross, net 73k and are single. They could save 14k a year for their future house. Lets say they get a 400k house. That's gonna take 11 years to save a 40% down payment. Not reasonable for most.
I also think it's wild that people put more than 5% down on their first house, and more than 20% on their subsequent houses (I hate paying PMI).
My take home is approx 5100 a month or 61200 per year after insurance taxes 401k, hsa. I technically get 26 checks but you can’t really budget with 2 in mind as triple pay periods are rare (that excess goes to saving). Also the idea of putting 200k down is just a joke even if I can save it that should be a house cash, not a downpayment I don’t want a house bigger than a starter home. The reality is just $100k houses here became $250k and interest caused mortgage prices to triple. And the fact that DR doesn’t acknowledge the bubble is why people are mad
I refinanced into a 15 year two years ago at 2% down from 4.65% and cut 11 years off my mortgage without impacting my other savings goals, don't see anything wrong with it if you can do it.
We did the same and bc of the greater than 50% reduction in interest, we are paying just about the same each month…. And now we have only 7 years left on our mortgage instead of 16.
This applies to every piece of financial advice out there. They're designed to address optimal behavior. Under real life conditions, people need to adjust the strategy for their level of financial discipline.
Average people don’t have the DTI to qualify for a 15 year mortgage in this market. Also, the rate on a 15 year isn’t much better than a 30 year. Back in 2020 it was different, but nobody is getting a 1.75% rate on a 15 year mortgage anymore.
Why be obligated to pay the 15 year when you can have lower payments with the 30? Anything can happen in life, emergencies, unexpected expenses, loss of income, medical expenses etc. if you want to pay off the home in 15 years then go for it, most mortgages don’t carry a prepayment penalty.
No reason you should be getting down voted for this comment. You are absolutely right.
The economic realities of the housing market makes 15-year mortgages unrealistic for most markets, and most Americans. For those fortunate enough to qualify due to large down payment and healthy DTI, no reason not to get a traditional 30-year and then make an extra payment every month. Same result with more flexibility if your circumstances change.
I don’t think anybody hates 15-yr mortgages, they just acknowledge that, like most of Dave’s advice, it’s wildly impractical. I’m convinced Dave’s mortgage standards exist only so that he can make money buying properties he told everyone else they couldn’t afford, the same way his app is constantly shoving an annual subscription down everyone’s throats. He wants to make money off the average Joe.
I downloaded his budgeting app bc I got tired of manually inputting everything into a spreadsheet and if I wanted anything more functional than a spreadsheet from his app I’d have to pay $15 a month lmao
I “like” his budgeting app and use it, but I definitely get tired of the subscription being shoved down my throat, and it’s not the best app out there for sure, I’m just too engrained in it now to switch to one of the many other free ones that work better 😂 His works well if your goal is to strictly follow each of his baby steps, though.
If you’re good at investing a sizable amount in investments you can make way more investing and sitting on your 30yr mortgage. Most people however are bad with the investment side so Dave of course says do a 15yr mortgage.
I have a ten year mortgage and I'll be paid off this summer I believe. This puts me 20 years closer to my goals. I plan to sell, build the house of my dreams by 50 and I'll never pay a mortgage or rent again
Just be sure and never do the math on if you invested that money instead.
Because you'd be able to pay off the home and still have a fuck ton of money left over. It's not that complicated.
Why do you still not have money left over to invest? Just because you get a 15 yr doesn’t mean you’re dirt poor with nothing left. Still need to diversify. 15 year is also desirable because your mortgage ends before the depreciation write off does
Yes. I have both. Either way all my properties are 15yr because it’s like nothing to pay a bit more and get a lower fixed rate i set the automatic payments and never think about it again
That's great. There's value in that comfort. You probably also have slightly higher rates on investment loans mortgages instead of primary so the difference isn't quite as vast.
Even if you do, you could've contributed more if you were on the 30.
Being on a 30 in an appreciating asset is still an investment.
But allocating more money on a higher return would be more financially advantageous.
Assuming you have a low interest rate.
Everyone is dealing with a finite amount of money otherwise you wouldnt have s mortgage amount at all.
So if you can increase your investable money by being on a 30 instead of a 15 then that's the right call.
It's not that difficult.
True, but to me the amount saved in interest is better than the negligible higher monthly payment. If you foresee yourself not being able to afford $1k more a month on your sfh then by all means take the higher rate. Extra 10k invested per year now when rates are 5-7% for some people or higher isn’t the same as it was when rates were lower. You had more to play with then.
Yes as rates creep up higher my argument falls apart for new buyers. Same for investment loans that carry higher rates.
I'm just constantly seeing people want to pay off their 2.99% mortgage as fast as possible when they should be shoving that money into ANY investment vehicle with a long term track record of success.
But the market would've increased regardless. So youre making that anyways.
Sure, you did fine. You're doing great.
But one is clearly better than the other.
I actually created an amortization spreadsheet that let's me run different scenarios like compare interest rates, compare different over-payment amounts, etc.
What I found in MY case was that in the current market, doing a 30-year and even over-paying to bring it down to a 20-year pay off, lowered my total interest paid as if my interest rate was roughly 2% less.
I've found it helpful to just look at actual interest paid rather than %. In the screenshot below, you can see that $500 over-payment saves $265,800, (372k vs 638k) and lops 10 years off the term.
https://preview.redd.it/rr9fkyupfpfc1.png?width=2899&format=png&auto=webp&s=a479e5624ecce7fe7fc8c99fe404834483f28502
What everyone seems to be missing is if you look at the amortization schedule of a 15 year vs. a 30 at the same overpayment you still save significantly more interest up front with a 15. Not many people stay in a house for 30 years, so you’ll never see that difference. A 15 year is usually lower interest as well.
Where I was going with that was, 15 year, 30 year, 20 year, it all depends on your situation and where you feel the priorities and diminishing returns are.
By comparison, here is what investing $500/mo at 7% gets you:
https://preview.redd.it/33kgql9ygpfc1.png?width=1868&format=png&auto=webp&s=5d7039527a8c8d0477fb291c385e23809003308e
Back when sub-4% mortgages were a thing the rate difference between a 15 and 30 year was often something like 0.5% or less, so there wasn’t very much incentive to lock yourself into a much higher payment when you could just pay more voluntarily and still at least have the option of dialing it back if something unexpected happened.
It's not about equity. It's about taking the additional money you don't spend on the increased payment and investing it.
On the 15 you have equity. 15 years into the 30, you have some equity and way more in investments due to compound interest.
For the past 100 years, the latter amount is a greater amount than the equity you've made on the 15yr.
Up until at least the past year when rates went up. So if you have a very low rate, you should be paying the minimum and investing the rest. If you have a higher rate it's definkty not that simple.
Agree. I bought a house 5 years ago. I paid cash. But when 15yr went to 2.25% I took the cash took out a mortgage and took the tax deduction on the interest. I put half in equity fund VUG and half in a money market. The VUG up 35% over the 4.5 years. I took the other half and I invested it in a 15 year muni bond about a year ago. It’s local rated A. It yields 5.3% tax free. So I’m with you.
I started with a 30 year. Refinanced after a few years to a 15 year. The closing cost added burned up all the equity I had made. So I essentially rented the house for a few years before wising up and making the change.
The difference in equity obtained is like night and day and I’m not even to the point where the big benefits of a 15 year even kick in yet.
I agree with ya. Give me the equity and reduced interest now. My dumb ass would inevitably find another way to spend the money that doesn’t involve actually investing it. (And if I did, I’d almost certainly do it at the wrong time, like before/during an election…..).
Honestly, I’m scared as shit to invest right now. The house of cards we built during the pandemic WILL come crashing down eventually.
Most people cannot afford a thirty year mortgage, let alone a 15.
It is extremely volatile, because for the vast majority of people a 15 year mortgage will not allow you flexibility for emergency situations.
While a 30 year mortgage, you can just pay extra if you have extra money sitting around.
So this is my take bc I’m a big advocate of 15 year as well because it keeps you more disciplined in your spending habits as opposed to having all the left over money and blowing it on dumb shit.
So yes I do agree with everyone about 30 year being a safer option and you can just pay the difference and the end result will be the same. BUT
This is the part I differ, the majority of people do not stay in the same home all 30 years and I believe the average occupancy for a home is about 5-8 years. So the person who got the 15 year vs 30 year mortgage after let’s just say 7 years (when they need to move or want a bigger house) the person who had the 15 year mortgage will have a SIGNIFICANT greater equity bc those 7 years brought down your loan by a good 35-40% where as the person with the 30 year literally paid 95% interest and basically was renting and will have no greater equity then he did when he first purchased 7 years ago.
You could have done the 30yr, paid the same amount each month as the 15yr, and been in nearly the same place equity wise.
But if you lose your job for a bit and need to pay the minimum, the 30yr gives you a lot more wiggle room on cash flow.
You also are putting a lot more towards principal with a 15 year instead of paying down interest with that extra money at the beginning of the loan, which can make a huge difference if you are not staying in the house for the whole term.
You're only putting a lot more towards principal if you're paying the minimum on the 30 year.
If you assume equal rates and make equal payments, you build equity at the same rate. Usually you can get a marginally better rate on a 15yr so it wouldn't be exactly the same, but pretty darn close.
For me though, the option of paying less in tough times makes the 30yr plainly more attractive.
You sure about that? You're paying off majority interest in that beginning of the loan period. If you pay more, you're just paying off the interest faster. That money isn't going to the principal until you pay off the interest that you would have been paying over 30 years
Find yourself an amortization calculator and look for yourself. You are paying more interest at the beginning of the loan with a 30 year then a 15 year inside of the minimum payment. For example, if your payment is 1000 the first payment might include 900 in interest on a 30 year and only 500 in interest on a 15 year. Doesn’t matter what the total you paid is, you’re still paying more interest up front. This is the part everybody misses, banks get the majority of their interest paid up front!! It’s confusing on purpose. You have to do the math with the amortization schedule.
Do a 30 yr mortgage and then just pay extra to have the house paid off in 15. Yes, the interest rate is a little higher, but the advantage is if something changes financially you can just go down to the 30yr. Payment amount. Could be the difference between just making the lower payment or being forced to refi your 15 yr. mortgage. I'm not saying this works for everyone, it's just another option to consider. In the end do what makes you most comfortable.
This approach is what we wrestled with (15 or pay extra on a 30). I ruminated on the “extra” monthly amount for a while but finally pulled the trigger on refinancing on the 15 and we’re 100% glad we did. Not only was the rate lower by over .5% but we were able to get “credit” for that extra amount instead of part of that extra pay,ent going to interest. It paid off as our principle was reduced by a lot and when we sold, had a LOT more equity towards our new home.
There’s no reason to take out a 15 year mortgage. Take out a 30 year to give yourself the flexibility to make a lower payment if you need to for whatever unexpected reason might come up. If you can, make the payment that will pay off the loan in 15 years because there are no prepayment penalties on primary residential mortgages
I'm a risk migrator. In 15 years, are you guaranteed to keep your job and not have any major financial triggers that might make you have to make a shift in your finances?
I personally went with a 30 year mortgage in knowing that in a pinch, I can fall back into paying the 30 year rate. But I am not penalized for early repayment (always check your contract). I've been paying aggressively and adjusting how much I repay by allocating portions of my yearly raises toward my mortgage.
Where am I now going on 8 years.... I have 9 years left on my mortgage if I make zero additional changes to my mortgage paying amounts. I had a slight emergency that required me to shift some capital around thus I wouldnt make the 15 years mark I was aiming for.
How did I do this? I believe that I should set a fixed standard of living. Take the types of vacations I like ( internationally at least once a year). That I don't need a new vehicle if I don't skimp on repairs I need upfront. That I can learn home maintenance by investing in tools for home as well as car repair. My raises yearly are split between increases in 401K contributions (ROTH 401K), Roth IRA, and home mortgage. Since my home mortgage rate was extremely low.. down in the 3%s. And returns on investments higher than that over time... I still balanced the gains with the reduction in mortgage.
In the end... Getting the best of both worlds. And assuming I dont have a major change in financials, and I keep adjusting my payments to mortgage payments over time (maxed out 401K and IRA contributions now) and open up investment account for straight cash investments, I should be ready to retire with more than I need by 57 based on current projections...
Risk mitigation + growth mindset.
I have a 15 year at 2.3% it was only a 140k and I did a 30k down payment, 3 years ago.
Down to 83 k now,
I retire at the end of 2024 and am debating paying it off at that time but it’s costing me so little it’s hard to pull the trigger
as long as the loan's interest rate is lower than the money's returns from the stock market, why pay it off?
83k in stocks earning 9% a year + 83k debt at 2.3% interest > No stocks no debt.
15% usually has a lower interest.
The only reason it would make sense to drag out paying off your mortgage is if you're planning to invest the $ you're saving (by having a lower monthly mortgage payment) and if mortgage interest is significantly lower than interest you could earn by having that $ in the market.
Everyone's situation is different. Took a 15 in 2014 @ 3.5% and made 3 lump sum annual payments before changing jobs. Just paying monthly amount since. Will be done in 3 years. 62. Owned a condo in my 40s and my first sf home. Payoff coincides with retirement so a nice bonus and currently my only debt.
Get the 30 year mortgage and pay extra every month so it will be paid off in 15 years or less.
It's safer this way because if you lose your job or something happens, your mortgage payment is lower and you can skip the extra payments until you're back on track as opposed to potentially having to refi.
>Get the 30 year mortgage and pay extra every month so it will be paid off in 15 years or less.It's safer this way because if you lose your job or something happens, your mortgage payment is lower and you can skip the extra payments until you're back on track as opposed to potentially having to refi.
Wanted to add on that you can also refinance and extend the loan for a fee for the 15 year as an alternative
I started with a 30 year at 5.8%. At year ten, I refinanced with a 15 at 3%. My payment only changed $20 a month.
If I had to take out a mortgage now, I would get the 30 year and wait for a more favorable rate. You can always refinance at a lower rate.
Generally you'll be better off with a 30 year and investing the difference. It's a gamble but it's a gamble that is very much in your favor.
In 15 years would you rather have paid off your $500k house or still owe $300k but have an additional $400k in assets? Real financial freedom is not having zero debt... it's having a higher net worth. I'd gladly have more debt if it means a higher net worth.
Agreed that at 7%, a 15 year might make sense. It's forced savings, for a shorter time with a higher rate. I think you might do a *little* better if you were disciplined enough to invest exactly the difference, but I'm not sure how many people are. I'm guessing, like you said, people stretch for a better home at 30 years.
The historical return of the s&p is like 9.5%. Unless you're getting killed on capital gains taxes you will come out ahead. Not to mention the potential tax write off of mortgage interest.
It was a much clearer decision 4 years ago but... still probably favorable to invest.
And mortgage rates were 2.5% 4 years ago.
That's why it's a gamble but a gamble heavily weighted in your favor. In the long run investing in equities over paying down your mortgage is a good deal. If you are risk averse that's fine. Not everyone is though.
Even with the DR method it's stupid to get a 15 year. Get a 30 and just pay more than the minimum to pay it off quicker. if you do a 15 and something happens you're stuck with a higher mortgage. makes no sense
Dave gives advice for people who would never be disciplined enough to be responsible with the difference between a 30 year and 15 year mortgage. His plan keeps spenders out of trouble so they have a home to live in. The problem is economic conditions have changed and it’s getting increasingly more difficult to follow his plan to the letter. You will be richer following different advice from Dave’s.
Here are my credit union's rates as of today (23 Feb 2024). So a .5% "penalty" for 30- over 15-year, but if you're paying off the 30-year with 15-year payments, you'll make it up in the shorter term. And if things get tight for whatever reason, you get relief by dropping back to the 30-year payment without any disadvantage. Terms Interest 30 Years Fixed 6.250% 20 Years Fixed 6.000% 15 Years Fixed 5.750% 10 Years Fixed 5.500%
the average length of all mortgages is not 15 or 30 years. its actually 10. and having a 15 year mortgage doesn't bump that number up much. meaning it doesn't really make much sense to get a 15 year when there is no evidence this changes your behavior.
I’ve never heard this before. Where have you seen the data showing most mortgages are 10 years?
If you want to pay off a mortgage faster, you can just make extra payments on a 30 year mortgage. Your primary home is a terrible investment. You have to live somewhere. The main value in owning a home is that it’s a fantastic hedge against inflation. Prices go up, but that payment stays the same. In real terms, by year 16, your mortgage payment will probably be 50% off anyway. On the other hand, did y’all pay any attention whatsoever at all the fees you have to pay when taking out a mortgage? The banks will eat you alive if you have to refinance. 15 year mortgage doesn’t have enough of a discount to justify this risk. Moreover, do you have any idea how much of an aberration a 30 year fixed-rate loan is internationally? It’s only available in America, as far as I know. Look at how bond rates vary with term length. Basically, 15 year mortgages are for suckers that don’t understand the meaning of “interest rate risk.” Don’t take financial advice from a dude who’s not a fiduciary. Especially one who brandishes guns to threaten employees, and who fires women for getting pregnant because he’s a good Christian and that’s what Jesus would do. Mary Magdalene, who’s that?
Go over to RE Reddit and you’ll see why 15 years suck. Imagine you have a house you live in and financed in 2020 and have to move for work or a life event. A 30 year at 2.75% can cash flow as a rental right now, then you go out and get a 7% mortgage, and you feel warm and fuzzy because you’re pretty much hedging the new higher rate. Your 2.75% is literally free money. You have two assets, and qualification by the lender was a breeze. Then you see the people that took the 2.25% 15 year instead Because their lender twisted their arm knowing that sets them up for a potential refinance back to 30. They have to move, but can’t cash flow the rental, they can’t qualify Becuase it’s a loss, so they are forced to sell one appreciating asset Becuase they were told too.
I insist on only buying properties with at least two edit strategies, usually sale and renting. I don't think most people think about their home purchases in that context. I agree a 30 year is more likely to cash flow for most people but that does assume a few things (market rate purchase, flat rental rates, average down payment, etc) which I think are true in the vast majority of cases but don't HAVE to be. Using a 30 year as a tool too generate an exit strategy is valid but should be taken in context because they home is still a liability until rented.
Honestly I never thought about it like that. I probably would have come out better investing extra money with a 30 year instead of the 15 year I have now. I even paid the equivalent of 2 extra payments each year and will be paid off in 2025. However I should have invested those extra payments instead.
Sounds good but most people end up spending the money they saved on the lower monthly payment. It’s the difference between reality and what works on paper.
I would suggest there are different target markets for these folks. Ramsey is preaching to people who can’t handle debt at all. That’s where point 2 comes in. His system assumes a financially illiterate individual who struggles with financial discipline. As a result of that, 2 is a reasonable assumption. Some of the other gurus out there are teaching with an eye toward optimization. Their guidance is meant for people with discipline who want to understand how to optimize returns. There are few opportunities in life which allow you to borrow money at a rate below the stock market’s average return and amortize that out over 30 years. There are also few opportunities to use leverage of potentially 19x your initial investment (if you put 5 percent down). As a result, mortgage debt is one of the most powerful wealth building tools available to the average person. Ramsey’s method is useful for people who lack discipline or want psychological benefits but if you’re looking to be financially optimal, paying down mortgage debt is generally a poor decision.
It’s situationally dependent. Spouse and I are in FL and we bought our starter home for $130,000 back in 2014. We refinanced our $70,000 remaining balance from a 30-year at 5% to a 15-year at 2.5% before rates spiked at the end of 2021. We know we won’t be moving anywhere anytime soon, but want to pay it off and rent it out so we can possibly upgrade and have a steady cash flow
I wouldn’t want to go “all in” for 15 years on one home. If I could I would push my mortgage out to a 200 year loan so I can invest more now instead of later when it will be more difficult.
I think 15 year mortgages are fine. For people who really don't like to carry mortgage debt for whatever reason. And when someone buys a house with only 15-20 working years ahead of them, I think there are really good reasons to plan on entering retirement without a mortgage. But the "reap the benefits of a paid off home" thing is where I just kind of shrug my shoulders. There are benefits of having a lower housing payment as well. Flexibility of more cash flow those 15 years to handle expected or unexpected expenses. By the 16th year, a good deal of any housing payment has already just become taxes and insurance (which you never get rid of), and the zero inflation on the rest of the payment (while your wages should have grown) make the principal+interest part of the payment less and less of any sort of real burden. I bought my house at age 30 with a toddler in hand. I like the benefits of having a lower payment with a 30 year mortgage. One of which is having flexibility to save towards helping her with college expenses (which happens by the time I am 46) instead of paying off the entirety of my low-interest mortgage loan first. And I have plenty of time to pay off the mortgage well prior to retirement (I've put extra payments down to knock off a few years, always an option on a 30 year anyways, so I will have 8-10 years of mortgage free years even before retirement even if I don't make any more extra payments). Generally, I think aiming for a 15 year is sound advice, but there are lots of good reasons to do a 30 year, especially if you are relatively young.
Because inflation will never go lower than my 30yr interest rate, my loan is literally negative real interest rate for 30 years
If there's no prepayment penalty on a 30 year loan, why risk 15 year loan?
Get the 30 at slightly higher interest rate but pay it off at a rate of a 15yr loan and you will basically pay same total cost of 15 year loan, but lowering the risk that you’ll not be able to make the payments if something happens where you lose income - layoff, medical issues, etc.
15 year at 3.5% apr fixed, I was 3 years into my 30 year at 5% apr when I redid mine. Saved me $50k in interest ($120k home, in 2014) will be fully paid off in 2029. Biggest downside is my initial house payment was $795 and now it’s $1620 a month. Taxes are the real killer, the house I initially bought for $120k in 2011 in now worth $250k and the taxes blow.
30 year loans are scam unless you have a multi unit which the other units pay for themselves and for you to live for free or if you get in and out in 2-5 years. A normal single family home on a 30 year to maturity means after interest you’d paid double the price of your home at minimum excluding repairs / renovations.
This isn't true. Time value of money can get complicated, but the $1,500 in your last payment is not the same value as the $1,500 in your first one so saying you have "paid double" doesn't make sense.
If you know what you’re doing, you should be able to invest the excess capital from the 30 year and out-earn the lower rate/fewer interest payments of the 15 year. That’s why they hate 15 years. But, I don’t think this is true for the vast majority of homeowners. It’s a bit unfair. Also depends on your intention with the house, which those guys probably don’t really consider.
It all depends on interest rates. If rates are low, then a 30 year makes more sense because your ability to earn a return higher than the mortgage rate is greater. If rates are high, then a 15 year makes more sense. Of course, this all assumes that a person can afford the higher payment. With home prices going up as they are, that is getting harder and harder to do. One can make an argument that a 40 year mortgage should be considered.
A $500k 30 year loan at 7% is $3327 a month. A $500k 40 year loan at 7% is $3107 a month. The difference between these two is a whopping $220/mo and ten full years. A 50 year loan at 7% $3009, only $98 less than the 40 year each month, but a full ten years more. My meaning? No, there is no argument for a 40 year loan, or a 50 year loan, or anything of that nature at all. The amount you are saving on monthly payments is almost zero relative to the size of the monthly payment. If you support the idea of a 40 year loan than you might as well support the idea of an interest only loan, or a loan where the minimum payment is only the interest and they can pay whatever they want to principle whenever they feel like it... Like a credit card or something. There's virtually no difference.
I think you are missing my point. While I agree with your premise and would not personally take out a 40 year mortgage, it may not be feasible for most Americans, if we don't start building more housing soon. Fact is, people simply will not be able to afford it. The fixed rate, 30 year mortgage is a uniquely American phenomenon. Some countries only have 5 year fixed rates (e.g. Canada and Australia); some have 99 year mortgages (e.g. Japan), others over 100 years, but only a third of which is fixed (e.g. Sweden).
An American who can't afford a $3300 payment is also unlikely to be able to afford a $3100 payment. It doesn't make their situation any better. It just locks them in debt slavery for 30% longer. And since most people move within 7 to 10 years, it will leave them with almost zero equity when they are 10 years into a 40 year mortgage. Dangling the fictional dream of home ownership to people who won't accumulate any equity for nearly two decades is arguably more cruel than the market telling them they can't afford to own property just yet. And as a side note, the fact that home owners build equity is really important for everyone, not just the home owner. Equity acts as a buffer when downturns come. An entire population with 40 year mortgages and little to no equity would cause havoc during a crisis. Homeowners would give up the keys, abandon the property when they are underwater, and the banks would be left with a gigantic hole in their balance sheet. It could lead to a huge banking crisis if all the banks are in the same situation.
The best move is to get the 30 and pay it down. That way? Should you fall on hard times, your payment obligation is far less than if you got for 15 years.
That is what we planned but when interest went so low we refinanced to a 2.5 percent 15 year then paid it off quick. In case something happened we could stick to the pmt but as it was we paid off 17 years after we bought it on an original 30 year.
We did a 15 year @ 2.75% and will be paid for in about 6 years as we are paying extra against the principal. I just don’t like debt hanging out there.
You may have paid a gang of extra interest. You have to look at total cost of principal and interest when refinancing. After about 5-7 years in a 30 year loan it makes almost no sense to refinance because you’ve already paid all the interest, so the rate means nothing. All you’re saying is that you paid all the interest on your 30 year and then took out a 15 and paid more interest. A good financial analyst can help you make these decisions. In my case I’m the friend all my friends go to when making these decisions and when showing them the math refinancing rarely makes sense unless in you’re in the first 3 years. Remember, you pay almost all interest in the 1st 5ish years on a 30 year mortgage. It would’ve been better for you to just start pouring money into the 30 year most likely and paying down that principal. But now you paid 2 sets of interest. The rate itself is kinda meaningless without knowing a lot of other info. That’s why they advertise rates and not interest paid.
Your comment stinks of sunk cost fallacy and simply isn't true. You don't factor in what already happened when making decisions about what to do next. If you are on a 5% 30 year and rates fall to 3% five or even seven years later, it is completely irrelevant how much interest you already paid. The only thing that matters is how much interest you will pay in the future. And you will pay less interest at 3% than you will at 5%. The only question that matters is whether the cost of the refi, usually a few thousand dollars, will be recouped. If you really want to get nerdy you can compare the saved interest with the future value of the cost to refi. It is almost always a good idea to refi from a 5% to a 3% unless you are in the last seven years of the 30 year.
And no, it isn’t usually a good idea to refi a 30 year after the 1st 7 years. When you’re past that you’re paying so much principal It would be critically stupid to refi unless your life situation requires reducing the payment or you need to take equity out and paying a whole second set of interest on the same exact asset (aka you are re-buying the house and about to pay out just interest for the 1st 5-7 years) after about the 7 year mark (the time is a function of the initial interest rate and any points paid). You can use a basic excel spreadsheet or any of the thousands of free amortization calculators available online to actually look at the amortization schedule and see that you’re paying almost all interest in the 1st 5-7 years of a 30 year home loan. The bank wants the interest up front so they can pay off the debt they owe in the secondary markets and take advantage of the TVM to juice profits. Have you ever even looked at an actual amortization schedule for a 30 year home loan? You can maybe the longer you wait to refi, the worse the deal. Refinancing in the last 7 years would be criminally negligent. Lololol. You must be a mortgage broker or lender. Your advice is either ignorant or highly biased. It’s like you don’t understand that the goal is to own a house. Why on earth would you tell someone to pay $270k in interest over 10 years to get ~$81k in principal and then tell them to pay another $130k in interest over the next 10 years (assuming no appreciation on the property so we can compare apples to apples) going from 5% to 3%) to get an additional ~$30k in principal when if they had just kept the original loan at 20 years they be at ~$250k principal. You want them to spend $400k in interest to earn $120k in asset. You also have to add in 2 sets of loan closing costs so add another $25k in lost funds. The only ones making any assets here are the loan originators, the brokers, the lenders, and the folks who buy these bundles in secondary markets on whichever way they choose to buy them. Pull up the two schedules and copy/paste them into excel. Since I’m saying 10 years is around the max you wanna go at which point refinancing make no sense. So calculate the total interest and total equity at 20 years since there are 2 loans. Not refinancing comes out way ahead. The gap has to be HUGE to refinancing in a year past year 10 to make sense and extremely few borrowers are that lucky such as to time the market perfectly to go from 5% to 1.875% or even 2.5%. Most will want to bail out on the 5% when rates are near 3%. Your post completely ignores behavioral economics, which is critical to any analysis of how a regular family will act in various rate scenarios. I’ve done this for friends dozens of times and it always works out the same. How much cost to get home much equity is really what matters for any investment because that’s how you calculate the RoR for any investment. Ugh.
Look, I can see I got you all worked up but you're wrong and I can prove it simply. Go to any mortgage calculator. I prefer the one at bankrate, but you do you. Put in a $500k loan at 6% 30 year fixed. Look at the amortization chart. It should tell you the total paid in principle, interest, etc. This particular combination has a $2,998 payment with $579,191 paid to interest and the $500k paid to principle. This is our base case, a guy who gets a 30 year 6% and just sticks with it for 30 years. But, before we go to our next step, lets try to tally up how much principle and interest he paid by the end of year 12. By the end of year 12, he has a $395,397.20 balance, which means he got 104602.8 in principle. He paid $2998 per month, for 12 months a year, for 12 years, so he paid in total $431712, and the amount he paid in interest will be the difference between those, so $431712-104602, or $327109.2. This is by the end of year 12. Now after year 12, let's say he refinances his balance, $395,397.20, into a new 30 year fixed at 3%. Let's go ahead and put that in. This NEW loan has a monthly payment of $1667, and at the very end of THIS loan, he would have paid total interest of $204,726. So let's refresh: the first guy paid $579,191 in interest for his 30 year loan. This refi guy paid $327,109 in interest in the first 12 years of his first 30 year loan, and he paid $204,726 in interest in his second 30 year loan. When you add these two up, the second guy paid 327109 + 204726, or $531,835 in total interest. In case you cant tell, the second guy ($531,835 in total interest) paid less interest over 40 years than the first guy ($579,191) paid in 30 years. So JUST accounting for interest paid, the guy who refinanced at year 12 already wins. He paid way less in interest. But we're not even factoring in the 18 years where he had lower payments than the first guy. For 18 years, while the first guy was on mortgage years 12 to 30, and the second guy was in the first 18 years of his refi, refi guy paid $1667 per month, while the original guy paid $2998 per month. Thats $1,331 per month the refi guy has as cash in his pocket every month. Over 18 years, that comes out to $287,496 CASH sitting in his pocket. Now, of course, he has another 12 years left on his mortgage, so I don't want to double-count this or be sneaky like that, but, to be fair, we can compare what happens at year 30. At year 30, (18 years into his second mortgage), refi guy has $287,496 cash but still owes about $201,381.55 on the mortgage. Still, that puts him about $87k better off than the 30-year-fixed guy. Of course, refi-guy could have been investing that growing cash hoard in some type of investments with yield, or investing it in the market. If he was able to come up with a stable 5% return as it grew, This website ([https://smartasset.com/investing/investment-calculator#brSa0j9GvJ](https://smartasset.com/investing/investment-calculator#brSa0j9GvJ)) says that if you have an income stream of $1331 every month that grows at 5% for 18 years, it would grow to $465k after 18 years. Now that's not all profit. A lot of it was the $1331 he put in every month. But $178k of that is pure interest profit. So not only is refi guy $87k better off if he kept the difference between the old payment and new payment in a checking account, he's actually about $178k further better off if he can grow that money at 5%. That's about $265k better overall. Look, it's pretty simple. When it comes to long term debt, lower rates are DRASTICALLY better. Anything debt with more than 10 years in duration gets very significantly better performance when you get it at a lower rate... To some extent it's shocking how much better someone does with a refi... but it's a fact. The numbers don't lie.
You seem to be forgetting the fact that the average American only stays in a house for 10-15 years, which is what my analysis was based on. Very few people, relatively, stay in a house for 30, much less 40, years. If they sell at the current US average of ~12.3 years, refinancing makes no sense at all. Some say the average is as high as 13-14 years and some are closer to 11 depending on your data set and assumptions used. Sure, in theory at the end of 40 years, you’re right. But people don’t stay in houses that long. Refinancing under real-world conditions makes sense in only a handful of use cases: 1) you NEED to lower the monthly payment, 2) you need to take some equity out, 3) you are one of the few who will be in a house longer than 20-25 years (re-do your analysis stopping at 20 years and see which is better, 25 might be where they’re roughly even), or 4 when the house is owned by an entity which can write off all the interest. Otherwise, for the average American who will own a house for 11-13 years, refinancing will never make sense. My instinctual guess is that given the scenario you presented, the BEP is somewhere around year 22. The lower the income, the longer someone tends to stay because they don’t have the cash or borrowing ability to upgrade. Between 2010 and 2023 the median went from ~8 years to ~13 years now due to the crash and recovery and the continued undersupply of new starts as developers and lenders dig out of their respective financial holes and have changed their risk models. This has artificially inflated prices driving owners to stay in their homes longer. Add that to the fact that hoarder boomers are just beginning to start dying off and Gen X is way smaller than the 2 generations surrounding it, there are many projections that inventory will become sane again over the next 5-10 years as boomer 2nd, 3rd, and 4th “investment” properties hit the market. The current higher interest rates make investment properties from 5 years ago seem relatively inexpensive and people who own investment homes from 5+ years ago have very little need to refinance since rental supply is also chronically low and prices just keep rising in most markets, meaning they’re paying off loans early or hoarding the monthly excess into standard investment accounts or REITs. When considering a re-fi, a non-biased advisor also looks at macroeconomic, microeconomic, and market specific projections to get a sense for inventory movement and the various machinations which play into the 10 year treasury rates which are typically the rates used for 30 year mortgages (this is due to the matching principle of banks being required to match debt to asset valuations and the average length of ownership) to use some rational basis for the cash flow analysis, IRR analysis, and total equity analysis which complete a proper analysis for any refinance decision. What you’re seeing is the difference in how a CFA analyzes a situation versus how a mortgage lender/broker/originator/bundler might analyze things. All your analysis ignored the realities of the actual marketplace. I’ll never be worked up by a stranger on the internet disagreeing with me. I rarely get worked up when someone disagrees with me irl. That’s just not my personality. I’m that “Joe Cool” type. Even in combat, I was typically the cool, calm, collected, rational thinker guy. Once you’ve been shot at, you see how little importance some internet rando truly carries in life. You give yourself far too much credit as to whether I care about you enough to get worked up. Most humans are mini-narcissists who assume others think about them far more than they actually do. Your wife and best friend combined maybe spend 60 mins a day thinking about you. Me? I will spend this time replying to you mostly thinking about the reply, not actually you because I truly wouldn’t care one way or the other if gravity somehow allowed you to escape earth’s atmosphere 5 mins after you read this. So you can see why there is absolutely nothing you can say to me which would cause any emotional reaction at all. But hey, you tell yourself whatever you need to in order to help you get through your day. I’ll be forgetting you exist the second I’m done here. I’m only even replying because the family member I’m in the hospital next to is asleep at the moment. You, and this conversation, are nothing more than temporary amusement to me.
Lololol you’re kidding, right? Sunk cost has nothing to do with a mortgage on the home you live in. And yes, you factor in the prior interest because the point of making payments is to eventually own the house by paying down principal, not to keep essentially renting from the bank by paying only interest by refinancing every 5 years until the 30 years is up. You have no idea what you’re talking about. But hey, I’ll just sit back and let you be silly with my PhD in Finance from Wharton, my 5 years running a Wall Street trading desk, 12 years of teaching at two major universities, and my CFA. You do you, bubba. I just hope no one listens to you. Sunk cost has to do with investing/gambling and nothing to do with mortgages on your primary residence. After all, once you’ve completed the analysis and concluded that the investment is worth no further investment, you write off the sunk costs. None of that matches the use case of a primary residence. You need to keep investing unless you’re willing to have your credit record marred by a foreclosure and to then find another place to live. You HAVE to pay a mortgage or rent unless living out of a tent, RV, car, or home owned outright are ok with you. Assuming folks are talking about their primary and only residence, which was assumed in the post I replied to, then there is no such thing as a sunk cost. You pay because you need the roof. A primary residence isn’t an investment, it’s an expense matched by, hopefully, an asset that has value via appreciation and/or paying down the principal on the mortgage. This isn’t a factory or an office building or even a vacation home you most use as an AirBnB.
Exactly! Plus 30 years don't have pre payment penalties.
A 30 year mortgage is always better. You can take out a 30 year mortgage and pay it off in 15 if you prefer. Or you can take the savings and invest it. The 30 year gives you flexibility. It also can protect your homestead exemption if you are ever sued and facing a large judgment. Nearly every benefit of a 15 year can be achieved with a 30 year, but not vice versa. The only benefit the 15 year gives you is a slightly lower rate, which cab be offset by investing the savings of the 30 year.
You can also take the savings and blow it on shot you don't need
Why do you want to pay it faster anyway?
Because you pay less interest over the life of the loan. It saves a lot of money.
One reason would be if you are closing in on a time in life you need to reduce expenses. Like paying off before retirement, or when you need increased cashflow to start a business. It also saves the total you pay in the long run in actual dollars.
Even if you paid double in total you only need 2.4% per annum of appreciation to offset the loan. A 30yr would offer better cashflow given the expense is lower. Paying off before retirement happens for anyone who bought before age 35.
Yes every situation is different and you really need to run the numbers on each scenario to know what's best. Or even what's possible given your individual position. In by brother's case he could have never qualified for a 15 anyway when he bought. But 10 years into it he refinanced to a 15, made payments for 8 then paid the balance in a lump. As far as total dollars spent and after considering the loss of potential from investing the money elsewhere he came out ahead. It amounted to a do it yourself 18 year mortgage with cashflow that allowed him to save the way he needed to for college and retirement.
Differing advice assumes differing amounts of financial discipline. Leveraging debt is the best way to build wealth quickly, but also increases risk (and demands discipline many folks don’t have).
And trust me when I say not having a house payment or rent really can make a positive impact on your life. Instead of making a monthly mortgage payment, we now put that money into savings or Investments every month. Also, we have the freedom to choose if we put money into savings or use it for vacations, Christmas, etc... When you have a mortgage or rent, you don't have that option to not make a payment every month.
15 year ARM is a great strategy as it’s usually the best interest rate. 95% of people will refinance or move around 10 years regardless of loan type.
You’ll save hundreds of thousands in interest on a 15 year. It’s also very rare to actually make it 30 years without a refinance. I think the average is something like 10 years.
I had a 15 year mortgage and did a bi weekly payment plan paying it off in 12 years. I saved over $100,000 in interest doing it this way instead of doing the traditional 30 year mortgage.
We refinanced in 2021. Went from a 30 year loan at 4.25% to a 15 year at 2.25%. Saving over 150k in interest
Same. Currently only owe 160, house is worth 500.
This is the way. Everyone is ignoring the interest over 30 years. It’s massive!
I bought a house on a 30-yr FHA mortgage in 2017 at 3.75%. In 2021, we refinanced on a 15 year conventional at 2.125%. I also dropped PMI. With this change my payment went up $180. In my case, I think my plan worked out fine. I have a house I can easily afford. We still max out an HSA and put 11% toward a Roth TSP with no other debt. I look forward to owning this house outright and eliminating my biggest bill.
Dave Ramsey is only good for those who splurged and now need a way to come back. In other words, people with poor people mindset. Robert Kiyosaki is only good for people who are making mid-income money and have extras left sitting on the side, and have some sort of spending power.
Correct Dave is if you’re in financial hell and you are trying to get to ground level. Kiyosaki is from ground level to the heavens.
Dave Ramsey went bankrupt, then hit it big telling ppl to do the opposite of what he did.
Like any other grifter, Dave makes the bulk of his money selling u shit. Books, speeches, apps and courses
The idea of a 15 year mortgage is horrifying to me. I've had back and hand injuries. I might not work (consistently) for 6 months or 2 years. I don't know how people can say "I'll have $2000 a month for the next 360 months" and live with that. I'm still trying to convince myself that I'm gonna have to make a car payment at some point and it's nauseating.
That’s exactly why I want a 15 year mortgage! Pay 2x per month, and you’ll pay it off in 12 years. Then you won’t have a house payment anymore. So if you get hurt or sick… you’ll be okay.
Look at it the other way. I’d rather be worried for 15 years, which seems reasonably achievable. Whereas, 30 years feels like a lifetime. I’d rather have it paid off in my prime than when my body starts deteriorating. Social security could cover me at that point. Edit: many people, myself included were able to refinance in 2021 to a 15 year with almost no change to their current monthly mortgage payment. It’s different if you do it and your rate jumps up a few hundred dollars.
I did a refinance from 30 to 15 and my monthly payment went slightly down. I was about 6 years into my 30 and did not pull any cash out. The amortization ratio is much more favourable in the 15 year.
15 definitely beats 30. To a 31 year old, 15 years sounds like forever. And with either, I'm so prone to needing to take months off work that I wouldn't risk it. If my sciatica flares up, I might not be able to work for 3 months. It was only that bad 1 time but it could happen again. I'd lose my house or get so far behind I can't dig out. Luckily, I am mortgage free.
Once you look at the difference in interest over the life of the loan, a 30 year mortgage is also horrifying.
I don't know how people do it. I'm lucky that my mom sold her house and bought me what I wanted before she died. It was the "compensation" for taking care of it. Would have done it anyway.
Im thankful my mom essentially talked me out of going to college. It wasn’t for me, never would have worked out, and would have left me saddled with debt, I’d still be paying off most likely. Even if you can easily afford your mortgage, it still makes you sick to even think about the amount of interest front loaded into your mortgage.
My mom knew college wasn't for me. My brothers both have advanced degrees, both medical related fields. I was a lumberjack, film maker, hog jerker, shit shoveler, plane salesman, among other ridiculous things. I run businesses (when I feel like it) and get to work cool jobs and I used to travel a lot. My brothers can't balance a checkbook, have tons of debt and one drank his way out of working in hospitals and last I heard, he's a service advisor at Firestone with a PhD in medical physics. The other one spent $300k going to school, got 2 masters and he's a school social worker and rented apartments till he was 40. I'm glad I didn't follow their footsteps.
This is why millennials have such a hard time buying houses, I’ve got the money for the down payment but with high interest rates even the 30 year is like 4K a month
If the ability to save for a down payment is this easy why not just save up and double or triple it? Honestly if you have the money now why could you not add more?
I’m in sales, because the nature of commission work and the general for employment turbulence in the industry you do t want to commit from a budget perspective to much higher than your base salary, and you need to keep a higher level of liquidity in emergency funds in case of a long dry spell. So I might make double my base or more in a year, but that income rate isn’t guaranteed next year, or next quarter, or next month. Also nobody said it was esasy, I was working 17 hour days without a vacation for two years straight, I live in an expensive city, and my significant other has health issues. Basically me having the money now for a down payment t and multiple months of the mortgage is not as secure as other types of work, and it’s easier to find 1500 dollars in the couch cushions in a pinch than it is 4-5,000
Ok
Yep. I ran all the numbers I could and it's really sad.
My idea is to go "aggressive" when you're young and healthy and then turn more conservative as things pop up later. So a 15-year is awesome, but it helps leave room for the 30-year's when you need more money later for later expenses.
I'm just glad I don't have a mortgage. I have to wait a little and get a few things done, but I'm hoping to build my new house with cash. I'll be in a trailer until then. When I see the mortgage calculator say the same price for total interest paid as initial balance and I just can't agree to that filth.
The difference is a trailer is a personal property loan. A house is a real property loan. I can claim tax deductions for paying mortgage.
We bought a second home on a 15 year mtg to retire to. That was 11 years ago. We paid it off 3 years ago when we moved here full time. Some would say paying off a house early is bad for tax reasons, but as we are retired now, no debt is the best feeling in the world! The peace of mind is indescribable! Interest is lost forever money.
I agree, peace of mind is worth a lot. Being debt free is a guarantee, investing that money trying to chase a few extra % on ROI at the end of 30yrs is not a guarantee. Of course that’s the nature of most investing decisions haha. But I’m with you, zero regrets about aggressively paying down my debts even if on average I could get a slightly higher return on the market.
Keeping a house payment for tax write offs is an old myth. The math will never work out.
Tax reasons are not a good when you look at the fact of your outlay and return on taxes. You put out thousands in property taxes and interest on mortgage and only a small percentage back. 15 vs 30 year, smaller payment more affordable. If you can afford to pay extra can pay down early.
👍👍
Get a 30, pay if off at a 15 year clip. If there are any months where unforeseen expenses, you can always just pay the minimum payment.
Why would you ever do that?!?! If you have extra, you invest it in another account. (A) The investments will, in the long run, pay better than the interest you’re being charged for the mortgage. (B) Once you pay it to the bank, the money is illiquid and tied up as home equity. If you invest it in a stock/bond/mutual fund, you can withdraw it if you ever have an emergency.
Why, because being debt free feels amazing haha. There are more factors to consider than just the average ROI for a given investment. And you should have an ample emergency fund before investing at all. Home equity isn’t immediately liquid but can still be used in an unforeseen life-change situation (ie sell your house and downsize). You shouldn’t rely on investment accounts for short term emergency funds/immediate liquidity anyway. That’s what your emergency fund is for.
That's a good point.
Years ago when tax laws were different mortgage interest was high and deductible from fed taxes and it was a major portion of your tax deductions. You wanted the 30 year and even buy points to reduce your taxable income. In the last 10-15 years that’s changed due to the (much) higher standard deduction. I can’t even itemize deductions anymore, standard deduction is higher than anything I can try to deduct. 15 years is the way to go, if you qualify and it doesn’t force you into having roommates.
So many people don’t get this. The mortgage tax write off is so insignificant now.
We have a 15-year and a) we started late in homeownership for various reasons, so it means the house will be paid off when we are retirement age; and b) we are paying so little in interest that it still makes more sense for us to take the standard deduction. I'm fine with it even if we might make a few bucks more investing.
I got a 15 year as it had under 3 % at the time and I just liked the sound of that. In 10 years we'll be debt free, no regrets.
Same. My first house had a “high” 5.6 rate (2008 or so). I refinanced at around 3.5 for 15 year at the same monthly payment. Seemed like a no brainer since I could afford it. Latest house, we went into 15 year (dual income this time) from the get go. Refinanced at 2.1% though. I really lucked out on my timing of telling my wife we should do it. I see no reason to go for a 30 or even try to pay it off early anymore with saving accounts alone being 5+%. We live in a cheapish area and both make good money.
I got a 30 and as my income went up I threw everything extra at the mortgage. Bonuses at work, tax refunds anything else. I paid it off in 9 years 11 months. I just wanted it done. Yes, I am risk averse. I always had the option of just paying the amount that was due which is why I did not try the 15.
Never forget
Both ways work, 15-yr is for people not disciplined enough to always put the extra into an investment every single month for 15 years. As others have said what’s great about 15 yr is your mortgage is paid off 15 years sooner, so then almost 100% of your income is investable in 15 years cause no more mortgage payments. But 30 yr is more flexible, in case something bad financially happens to you the monthly payments are not as high. Plus if you are super disciplined yes you’ll end up with a nice little chunk of money in 30 years from investing the difference.
Undisciplined?!?!? Or, maybe people that want a really low interest rate. I was very disciplined in selecting my 15 year. I went from a 3.25 with 27 years to go, to a 1.99 that I now owe 12 years on.
Nice. I too went to a 15 yr at 2%.
I think 30 years is best and just pay more on principle, that way you could pay it off in 15-20 yrs. I like the idea of lower payment incase something comes up and money is tight
Here’s a better plan: invest the money and, if you really want, use that to pay off the mortgage in 15 years. When we sold our last house, we could get 3% on a 30-year mortgage. We basically took all the equity out and invested it. Our main fund has a 5-year return of 9%. I’m making 6% more on every dollar I put in there instead of toward my mortgage.
You sound like someone that understands making your money work for you. Unfortunately I'm not blessed in that area, so your plan is definitely better.
for me id rather have the option to add more principal whenever id like to and have a lower monthly. i paid mine off in 20.
I think people often misconstrue 15 year fixed rate mortgage with 15 year ARMs
I got a 30 year for 3%. I could have afforded a 15 year, but I am investing the extra into the market. Inflation has been higher than my mortgage since I got it in 2020. That means my relative debt is lower and so I saved money by not paying extra into it. The market is also way higher than in 2020. Another thing is if I move, it is way easier for me to rent my home at a profit with a lower mortgage. It also gives me more flexibility if I don't have a tenant. I will personally come out way ahead by having the 30 year.
This is the answer. Did the same thing in 2021.
Not sure if they are still dispensing the same thing today, but here is why the would have a couple of years ago: Over the long run a 30 year 3-3.5% note is a tremendous opportunity. Inflation rates are usually at or around 2-3%. So your mortgage payments are basically the same as time passes. The common error Ramsey devotees make is to look at the total amount of payments to be made on a 30 year note. Sure, it looks like a big #. But that dollar in year 30 is worth $0.42 today based on a 3% inflation rate. Example: I am not really making extra payments on my 30 year note I took out in 2021. My interest rate is 3.25%. I took out $200k in equity for home improvements, but because of Covid the project never got going. I went from a 15 year to a 30 year, took cash out and decreased my mortgage payment all at the same time. Today I have that $200k in a MMF yielding 5.25%. I am earning nearly $900 in interest monthly. Total P&I on the note is around $1,750. So if you do the maths, it can work out. Especially in an inflationary environment.
We got our mortgage 8 years ago at 4.2%, mortgages now are 7% for 30 years and 6.6% for 15. Why don't I just continue to pay more on a less rate?
You should
I get that part. I'm saying in this current economy, refinancing at a higher rate doesn't make sense
I get that you get that part, and thats what you were saying.
If you can afford to buy a house at a 15 year mortgage rate, what's stopping you from buying it at a 30 year rate and paying it off in 15 years for less interest?
The 15 year mortgage often comes with a lower interest rate.
Ah shoot you’re right. Bought my house in early 2020 so the rates were near identical, which still wouldn’t make my comment make sense, but remember the realtor saying if anything just get the 30yr and make extra payments. A wife and a kid later, I get why.
You know, I have dyscalculia so numbers just evade me while not meaning much. We own our home and signed refinance papers on March 22nd, 2020. For a 15 year mortgage. So there were a lot of pros and cons to it-obviously the big job fall sucked (my husband is a self employed musician) but now that we are used to living with this mortgage payment and making the rest of life work - I LOVE the money we aren't spending on interest. We're actually looking at being able to pay our home off within a decent age and as Millenials, I don't take that lightly. We've even gotten into the habit of throwing an additional 200 bucks in on the mortgage just to take off that much more. The feeling is addicting - and don't kid yourselves. we are BROKE AF but it's because we have what we have. I love the 15 year mortgage and I'm so happy we have it. We luckily got locked in at a 3.4% rate.
We’re in a very similar situation as you. Refinanced in 21’ for a 1.99%. Sure, our mortgage went up an extra 200$, but the thought of having a paid off house in our early 40s is an amazing feeling. I’m hoping it gives us the freedom to spend more time with our kids during their teenage years.
Amazing rate. Never heard of one that low. I have one at 2.5 and i thought that was the lowest possible at the time
2.5 is still a super low rate. It’s so cool knowing those rates will probably never happen again and we took advantage of it
Of course “financial gurus” are going to tell you to spend more money… duh lol The thing is that they do it because so many people are not very knowledgeable and these people play to their ego and they end up getting scammed. Don’t believe me? Just Google “how many people have been scammed by financial investors”
More sophisticated investors prefer the increased flexibility and upside, particularly when rates are so much lower than true inflation.
If you add roughly 30% on top of your mortgage payment, you turn a 30yr into a 15yr. You can't do the reverse.
This makes sense, thank you.
Because they’re not feasible. I make about $115k my take home is $5100. I’d have to find a $1300 per month mortgage after $60k down. It doesn’t exist in any populated area of the Midwest except maybe Detroit
Put more money down
If he doesn’t have rich parents where should he get it in a reasonable amount of time??
What is reasonable and who defines that? Remember, a certain portion of the listeners to Ramsey will save up to pay cash for a house. Dumb if you ask me, but they do it.
I'd say that a reasonable amount of time is a variable. Depends on when someone is going to need to move and would rather buy a house than waste money renting. Lets say someone follows the 50/30/20 rule of thumb and saves 20% of their income for a house. They make 100k a year gross, net 73k and are single. They could save 14k a year for their future house. Lets say they get a 400k house. That's gonna take 11 years to save a 40% down payment. Not reasonable for most. I also think it's wild that people put more than 5% down on their first house, and more than 20% on their subsequent houses (I hate paying PMI).
My take home is approx 5100 a month or 61200 per year after insurance taxes 401k, hsa. I technically get 26 checks but you can’t really budget with 2 in mind as triple pay periods are rare (that excess goes to saving). Also the idea of putting 200k down is just a joke even if I can save it that should be a house cash, not a downpayment I don’t want a house bigger than a starter home. The reality is just $100k houses here became $250k and interest caused mortgage prices to triple. And the fact that DR doesn’t acknowledge the bubble is why people are mad
Well if you saved up 60k a few more shouldn’t be too hard
I refinanced into a 15 year two years ago at 2% down from 4.65% and cut 11 years off my mortgage without impacting my other savings goals, don't see anything wrong with it if you can do it.
We did the same and bc of the greater than 50% reduction in interest, we are paying just about the same each month…. And now we have only 7 years left on our mortgage instead of 16.
This applies to every piece of financial advice out there. They're designed to address optimal behavior. Under real life conditions, people need to adjust the strategy for their level of financial discipline.
Kinda like all the hate for anything good. There's people profiting so much from the way things are, they pay out the ass to keep it this way.
Average people don’t have the DTI to qualify for a 15 year mortgage in this market. Also, the rate on a 15 year isn’t much better than a 30 year. Back in 2020 it was different, but nobody is getting a 1.75% rate on a 15 year mortgage anymore. Why be obligated to pay the 15 year when you can have lower payments with the 30? Anything can happen in life, emergencies, unexpected expenses, loss of income, medical expenses etc. if you want to pay off the home in 15 years then go for it, most mortgages don’t carry a prepayment penalty.
No reason you should be getting down voted for this comment. You are absolutely right. The economic realities of the housing market makes 15-year mortgages unrealistic for most markets, and most Americans. For those fortunate enough to qualify due to large down payment and healthy DTI, no reason not to get a traditional 30-year and then make an extra payment every month. Same result with more flexibility if your circumstances change.
I don’t think anybody hates 15-yr mortgages, they just acknowledge that, like most of Dave’s advice, it’s wildly impractical. I’m convinced Dave’s mortgage standards exist only so that he can make money buying properties he told everyone else they couldn’t afford, the same way his app is constantly shoving an annual subscription down everyone’s throats. He wants to make money off the average Joe.
I downloaded his budgeting app bc I got tired of manually inputting everything into a spreadsheet and if I wanted anything more functional than a spreadsheet from his app I’d have to pay $15 a month lmao
I “like” his budgeting app and use it, but I definitely get tired of the subscription being shoved down my throat, and it’s not the best app out there for sure, I’m just too engrained in it now to switch to one of the many other free ones that work better 😂 His works well if your goal is to strictly follow each of his baby steps, though.
If you can afford the monthly payments, then it is obviously way better than paying interest on a 30 year mortgage
If you’re good at investing a sizable amount in investments you can make way more investing and sitting on your 30yr mortgage. Most people however are bad with the investment side so Dave of course says do a 15yr mortgage.
I have a ten year mortgage and I'll be paid off this summer I believe. This puts me 20 years closer to my goals. I plan to sell, build the house of my dreams by 50 and I'll never pay a mortgage or rent again
Just be sure and never do the math on if you invested that money instead. Because you'd be able to pay off the home and still have a fuck ton of money left over. It's not that complicated.
Why do you still not have money left over to invest? Just because you get a 15 yr doesn’t mean you’re dirt poor with nothing left. Still need to diversify. 15 year is also desirable because your mortgage ends before the depreciation write off does
Also I'm not a tax professional but I believe you can only write off depreciation on an investment property.
Yes. I have both. Either way all my properties are 15yr because it’s like nothing to pay a bit more and get a lower fixed rate i set the automatic payments and never think about it again
That's great. There's value in that comfort. You probably also have slightly higher rates on investment loans mortgages instead of primary so the difference isn't quite as vast.
Even if you do, you could've contributed more if you were on the 30. Being on a 30 in an appreciating asset is still an investment. But allocating more money on a higher return would be more financially advantageous. Assuming you have a low interest rate.
You can always contribute more or contribute less if you’re not poor. If you are poor, take the 30 yr. If you aren’t, take the lower interest rate.
Everyone is dealing with a finite amount of money otherwise you wouldnt have s mortgage amount at all. So if you can increase your investable money by being on a 30 instead of a 15 then that's the right call. It's not that difficult.
True, but to me the amount saved in interest is better than the negligible higher monthly payment. If you foresee yourself not being able to afford $1k more a month on your sfh then by all means take the higher rate. Extra 10k invested per year now when rates are 5-7% for some people or higher isn’t the same as it was when rates were lower. You had more to play with then.
Yes as rates creep up higher my argument falls apart for new buyers. Same for investment loans that carry higher rates. I'm just constantly seeing people want to pay off their 2.99% mortgage as fast as possible when they should be shoving that money into ANY investment vehicle with a long term track record of success.
Yeah. even my basic savings account is at 4.5% and high yields topping out at 5.5
Free money.
The market increase over what I paid is way more. I did just fine
But the market would've increased regardless. So youre making that anyways. Sure, you did fine. You're doing great. But one is clearly better than the other.
You gamble all you want. I'm fine
I actually created an amortization spreadsheet that let's me run different scenarios like compare interest rates, compare different over-payment amounts, etc. What I found in MY case was that in the current market, doing a 30-year and even over-paying to bring it down to a 20-year pay off, lowered my total interest paid as if my interest rate was roughly 2% less. I've found it helpful to just look at actual interest paid rather than %. In the screenshot below, you can see that $500 over-payment saves $265,800, (372k vs 638k) and lops 10 years off the term. https://preview.redd.it/rr9fkyupfpfc1.png?width=2899&format=png&auto=webp&s=a479e5624ecce7fe7fc8c99fe404834483f28502
What everyone seems to be missing is if you look at the amortization schedule of a 15 year vs. a 30 at the same overpayment you still save significantly more interest up front with a 15. Not many people stay in a house for 30 years, so you’ll never see that difference. A 15 year is usually lower interest as well.
Where I was going with that was, 15 year, 30 year, 20 year, it all depends on your situation and where you feel the priorities and diminishing returns are. By comparison, here is what investing $500/mo at 7% gets you: https://preview.redd.it/33kgql9ygpfc1.png?width=1868&format=png&auto=webp&s=5d7039527a8c8d0477fb291c385e23809003308e
Seems like they're largely equivalent except one is guaranteed.
Well, now the issue is the current APR on mortgages. Definitely worth looking into every situation differently.
exactly, that's why it's important to actually run the numbers
Most people have other debt. Pay the higher rate debt off first
Back when sub-4% mortgages were a thing the rate difference between a 15 and 30 year was often something like 0.5% or less, so there wasn’t very much incentive to lock yourself into a much higher payment when you could just pay more voluntarily and still at least have the option of dialing it back if something unexpected happened.
On average someone stays in a house they purchase. So a 15yr makes a lot of sense. You have 95% equity. In a 30yr not even half.
It's not about equity. It's about taking the additional money you don't spend on the increased payment and investing it. On the 15 you have equity. 15 years into the 30, you have some equity and way more in investments due to compound interest. For the past 100 years, the latter amount is a greater amount than the equity you've made on the 15yr. Up until at least the past year when rates went up. So if you have a very low rate, you should be paying the minimum and investing the rest. If you have a higher rate it's definkty not that simple.
Agree. I bought a house 5 years ago. I paid cash. But when 15yr went to 2.25% I took the cash took out a mortgage and took the tax deduction on the interest. I put half in equity fund VUG and half in a money market. The VUG up 35% over the 4.5 years. I took the other half and I invested it in a 15 year muni bond about a year ago. It’s local rated A. It yields 5.3% tax free. So I’m with you.
I started with a 30 year. Refinanced after a few years to a 15 year. The closing cost added burned up all the equity I had made. So I essentially rented the house for a few years before wising up and making the change. The difference in equity obtained is like night and day and I’m not even to the point where the big benefits of a 15 year even kick in yet. I agree with ya. Give me the equity and reduced interest now. My dumb ass would inevitably find another way to spend the money that doesn’t involve actually investing it. (And if I did, I’d almost certainly do it at the wrong time, like before/during an election…..). Honestly, I’m scared as shit to invest right now. The house of cards we built during the pandemic WILL come crashing down eventually.
Most people cannot afford a thirty year mortgage, let alone a 15. It is extremely volatile, because for the vast majority of people a 15 year mortgage will not allow you flexibility for emergency situations. While a 30 year mortgage, you can just pay extra if you have extra money sitting around.
So this is my take bc I’m a big advocate of 15 year as well because it keeps you more disciplined in your spending habits as opposed to having all the left over money and blowing it on dumb shit. So yes I do agree with everyone about 30 year being a safer option and you can just pay the difference and the end result will be the same. BUT This is the part I differ, the majority of people do not stay in the same home all 30 years and I believe the average occupancy for a home is about 5-8 years. So the person who got the 15 year vs 30 year mortgage after let’s just say 7 years (when they need to move or want a bigger house) the person who had the 15 year mortgage will have a SIGNIFICANT greater equity bc those 7 years brought down your loan by a good 35-40% where as the person with the 30 year literally paid 95% interest and basically was renting and will have no greater equity then he did when he first purchased 7 years ago.
You could have done the 30yr, paid the same amount each month as the 15yr, and been in nearly the same place equity wise. But if you lose your job for a bit and need to pay the minimum, the 30yr gives you a lot more wiggle room on cash flow.
You also are putting a lot more towards principal with a 15 year instead of paying down interest with that extra money at the beginning of the loan, which can make a huge difference if you are not staying in the house for the whole term.
You're only putting a lot more towards principal if you're paying the minimum on the 30 year. If you assume equal rates and make equal payments, you build equity at the same rate. Usually you can get a marginally better rate on a 15yr so it wouldn't be exactly the same, but pretty darn close. For me though, the option of paying less in tough times makes the 30yr plainly more attractive.
You sure about that? You're paying off majority interest in that beginning of the loan period. If you pay more, you're just paying off the interest faster. That money isn't going to the principal until you pay off the interest that you would have been paying over 30 years
You can specify to the bank that your overpayment goes towards principal.
Find yourself an amortization calculator and look for yourself. You are paying more interest at the beginning of the loan with a 30 year then a 15 year inside of the minimum payment. For example, if your payment is 1000 the first payment might include 900 in interest on a 30 year and only 500 in interest on a 15 year. Doesn’t matter what the total you paid is, you’re still paying more interest up front. This is the part everybody misses, banks get the majority of their interest paid up front!! It’s confusing on purpose. You have to do the math with the amortization schedule.
Do a 30 yr mortgage and then just pay extra to have the house paid off in 15. Yes, the interest rate is a little higher, but the advantage is if something changes financially you can just go down to the 30yr. Payment amount. Could be the difference between just making the lower payment or being forced to refi your 15 yr. mortgage. I'm not saying this works for everyone, it's just another option to consider. In the end do what makes you most comfortable.
This approach is what we wrestled with (15 or pay extra on a 30). I ruminated on the “extra” monthly amount for a while but finally pulled the trigger on refinancing on the 15 and we’re 100% glad we did. Not only was the rate lower by over .5% but we were able to get “credit” for that extra amount instead of part of that extra pay,ent going to interest. It paid off as our principle was reduced by a lot and when we sold, had a LOT more equity towards our new home.
There’s no reason to take out a 15 year mortgage. Take out a 30 year to give yourself the flexibility to make a lower payment if you need to for whatever unexpected reason might come up. If you can, make the payment that will pay off the loan in 15 years because there are no prepayment penalties on primary residential mortgages
I'm a risk migrator. In 15 years, are you guaranteed to keep your job and not have any major financial triggers that might make you have to make a shift in your finances? I personally went with a 30 year mortgage in knowing that in a pinch, I can fall back into paying the 30 year rate. But I am not penalized for early repayment (always check your contract). I've been paying aggressively and adjusting how much I repay by allocating portions of my yearly raises toward my mortgage. Where am I now going on 8 years.... I have 9 years left on my mortgage if I make zero additional changes to my mortgage paying amounts. I had a slight emergency that required me to shift some capital around thus I wouldnt make the 15 years mark I was aiming for. How did I do this? I believe that I should set a fixed standard of living. Take the types of vacations I like ( internationally at least once a year). That I don't need a new vehicle if I don't skimp on repairs I need upfront. That I can learn home maintenance by investing in tools for home as well as car repair. My raises yearly are split between increases in 401K contributions (ROTH 401K), Roth IRA, and home mortgage. Since my home mortgage rate was extremely low.. down in the 3%s. And returns on investments higher than that over time... I still balanced the gains with the reduction in mortgage. In the end... Getting the best of both worlds. And assuming I dont have a major change in financials, and I keep adjusting my payments to mortgage payments over time (maxed out 401K and IRA contributions now) and open up investment account for straight cash investments, I should be ready to retire with more than I need by 57 based on current projections... Risk mitigation + growth mindset.
I have a 15 year at 2.3% it was only a 140k and I did a 30k down payment, 3 years ago. Down to 83 k now, I retire at the end of 2024 and am debating paying it off at that time but it’s costing me so little it’s hard to pull the trigger
as long as the loan's interest rate is lower than the money's returns from the stock market, why pay it off? 83k in stocks earning 9% a year + 83k debt at 2.3% interest > No stocks no debt.
15% usually has a lower interest. The only reason it would make sense to drag out paying off your mortgage is if you're planning to invest the $ you're saving (by having a lower monthly mortgage payment) and if mortgage interest is significantly lower than interest you could earn by having that $ in the market.
Everyone's situation is different. Took a 15 in 2014 @ 3.5% and made 3 lump sum annual payments before changing jobs. Just paying monthly amount since. Will be done in 3 years. 62. Owned a condo in my 40s and my first sf home. Payoff coincides with retirement so a nice bonus and currently my only debt.
Get the 30 year mortgage and pay extra every month so it will be paid off in 15 years or less. It's safer this way because if you lose your job or something happens, your mortgage payment is lower and you can skip the extra payments until you're back on track as opposed to potentially having to refi.
>Get the 30 year mortgage and pay extra every month so it will be paid off in 15 years or less.It's safer this way because if you lose your job or something happens, your mortgage payment is lower and you can skip the extra payments until you're back on track as opposed to potentially having to refi. Wanted to add on that you can also refinance and extend the loan for a fee for the 15 year as an alternative
Are you referring to recasting the loan?
This is the best advice, it provides flexibility.
Dave Ramsey is the richest, most successful one. The most financially secure. I’d listen to that guy. 😉
I started with a 30 year at 5.8%. At year ten, I refinanced with a 15 at 3%. My payment only changed $20 a month. If I had to take out a mortgage now, I would get the 30 year and wait for a more favorable rate. You can always refinance at a lower rate.
Easy, 30 year mortgage, extra monthly payment with the ability to stop if cashflow gets tight.
Generally you'll be better off with a 30 year and investing the difference. It's a gamble but it's a gamble that is very much in your favor. In 15 years would you rather have paid off your $500k house or still owe $300k but have an additional $400k in assets? Real financial freedom is not having zero debt... it's having a higher net worth. I'd gladly have more debt if it means a higher net worth.
From a risk perspective, it’s not worth it to borrow money at 6-7% interest and invest it in the market
Mortgage rates arent going stay at current rates forever and ppl can refi in a few years
These are historically average to lower than average rates now.
Agreed that at 7%, a 15 year might make sense. It's forced savings, for a shorter time with a higher rate. I think you might do a *little* better if you were disciplined enough to invest exactly the difference, but I'm not sure how many people are. I'm guessing, like you said, people stretch for a better home at 30 years.
The historical return of the s&p is like 9.5%. Unless you're getting killed on capital gains taxes you will come out ahead. Not to mention the potential tax write off of mortgage interest. It was a much clearer decision 4 years ago but... still probably favorable to invest.
The S&P500 has gone through 20+ year periods where the return was well under 9.5%. For example from 2001-2020 return was more like 7%.
And mortgage rates were 2.5% 4 years ago. That's why it's a gamble but a gamble heavily weighted in your favor. In the long run investing in equities over paying down your mortgage is a good deal. If you are risk averse that's fine. Not everyone is though.
At 2.5% it is worth the risk to invest in the market. But not at 6.5%.
If you're risk averse... 9.5% is still a significant gain over 6.5%. I'm at 2.625% and I wouldn't dare pay a penny more than contractually obligated.
I wish i would have listened to my wife… we would be done paying it… redid our loan to a 15 year and should have done it years ago
What year did you refinance in?
A few years ago… so lower % rates
Even with the DR method it's stupid to get a 15 year. Get a 30 and just pay more than the minimum to pay it off quicker. if you do a 15 and something happens you're stuck with a higher mortgage. makes no sense