Is a 15 or 30-Year Loan Better?
A lot of people think that a 15-year loan is a better loan than a 30-year loan because they will save a ton of interest. In fact, a 15-year loan will save a lot of interest. However, I am not worried about how much interest I will save, I am worried about how much money will ultimately end up in my pocket. I am happy to pay millions of dollars in interest if it will mean I will make millions of more dollars that I will get to keep.
Over the lifespan of a 15-year mortgage on a $200,000 house, you can save over $100,000 in interest over a 30-year mortgage. But by paying off the 15-year mortgage you are also spending over $80,000 more in payments than the 30-year mortgage for the same time period. If you were to invest that money that you save by getting a 30-year mortgage you more than make up for the interest you save. Not only have you made more money by investing the money instead of paying off your house, you are in a safer position. A house is a very difficult asset to get money out of. You have to sell or refinance the property to take money out. If you get in a position where you need the money, you may not be able to refinance because you do not have the income or the credit. I think it is much safer to have an emergency fund and invest the money than it is to have a short-term mortgage.
Something else to consider is that the United States is one of the only countries that have 30-year mortgages. They have those mortgages because of government help. Banks do not want to give out mortgages for that long of a time period. They want shorter loans because they make more money. If it was really great for the consumer to get a shorter term mortgage, why do banks not like longer-term loans? Locking in a payment for 30 years is a huge advantage because money is worth less in the future than it is now. Inflation causes your house payment to be much more affordable in 20 years than it is today. The longer you can prolong paying, the better off you will be.
A 30-year loan is also safer because if something happens, the 30-year payment is much lower. It would be much easier to make payments and weather a storm.
I talk much more about the numbers and why a 30-year loan is better here. https://investfourmore.com/2018/06/18/is-a-15-year-loan-smarter-than-a-30-year-loan/
I have a 30 year mortgage that we are working to pay off early. The only reason we are trying to pay it off is simply so we can reduce our debt and not need to make as much money.
I can certainly see why a 30 year makes more sense as an investment.
Maybe we should re-think the early payoff, but I am eager to reduce our monthly expenses. Food for thought. Thank you.
Something to consider is if that money can be invested better in something else.
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