What are the benefits and negatives of a 15 year mortgage versus a 30 year?

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My wife and I have a fourth-grader, which is discussed later.

On the plus side for the 15-year, we’d get more equity in the house faster. It appears that within three years, the equity difference would outweigh the difference in payments. So if we stayed 3 years or 33 years (for example), the 15-year would present a better equity position with much less interest paid over the life of the loan, not to mention a rate that’s a half point lower over the life of the loan.

On the down side, if we later need equity (we have not decided on public v. private high school down the road), it would seem that a 15-year mortgage might tie us down financially. Even if we have more equity in 5 years, we might have to borrow against it at a considerably higher rate if our daughter goes to private school because we would not have been saving nearly as much monthly. Also, because a 15-year loan for $ 170k would be $ 400 more monthly than a 30-year loan, there is really no option of keeping and renting the house if we decide to move four years down the road. Our costs could be covered with a low monthly payment from a 30-year loan. Then again, who wants to be a landlord? Another thing to consider.

I’m confused. Thanks for any ideas.

  1. Reply
    jamie's answers
    February 12, 2011 at 4:15 pm

    i use to do mortgages for 7 years.

    if you can easily swing the 15 year note, do it.
    you will save so much money.
    if you are in anyway shape or form not sure
    take the 30 year and pay the 15 year payment!
    yes you will have a slightly higher rate, but you will have the option to make a lower payment when needed and you will still save a small fortune on your mortgage.
    i think the rule of thumb is ..2 extra payments a year on a 30 can knock off over 10 years of the loan!

  2. Reply
    February 12, 2011 at 4:57 pm

    The key is if you plan to stay in the house for more than four or five years. If you do, get the shorter mortgage. If not, get the longer one. if you’re planning on moving in the next five years, you won’t really care about building equity, since you’ll just want to get enough on the sale of the house to cover the balance of the mortgage.

    Looking at long-term, I’d want to build up the equity as quickly as possible, but I’d also want to reduce my debt as quickly as possible. if you plan to stay, the dollars you pay into the house later in a longer mortgage have less value (due to inflation) than the dollars you spend today.

    I would also consider using your credit to get a personal loan of some type vice borrowing against the house (as in an home equity loan). You could use the house as collateral, but you’re not tying up the equity you’ve built up.

  3. Reply
    February 12, 2011 at 5:23 pm

    How to get that 4th grader practically free into college – will be disccussed later.

    I would do the 30 if you don’t think you could handle the payments on a 15.
    Never allow your payment to be more than 25% of your take home pay.
    If you do a normal fixed loan (not any variables or ARMS), you can easily put more money towards principal any time you want.
    Just mail in a separate check with the words in the memo “payment towards principal only”.
    Check with the lender to make sure – only a penalty with variable rates – but make sure.

    The lower payments will allow you to save.
    You could pay off cars, start putting money away into retirement, and save for college.

    Here is the college part:
    Google FAFSA – then google Estimated Family Contribution Calculator.
    You’ll notice that they expect you to pay a certain amount from your savings for college.
    529’s are even worse – I think 25%.
    This amount you can afford will be expected out of your pocket.
    Everything in taxable accounts, such as savings, checking, and brokerages will also count.

    So your goal could be to have very little 2 years before your child goes off to college.
    Collges offer great student loans that don’t have to be off until lthe child graduates – you can pay these off for him.
    So to “hide” money. 2 years before, make a goal to have no debt.
    No car loans, no mortgage, no taxable accounts.
    Hide money in 401K’s, IRA’s, etc
    There are seminars that will charge you thousands for this info – enjoy.
    If you get in a bind – which you won’t due to all the loans you can get, you can take a loan on your house, AFTER filling out the FAFSA.

  4. Reply
    February 12, 2011 at 5:57 pm

    It isn’t equity, it is expense.

    You radically lower the total price of home ownership with a 15 year mortgage. That’s money you can spend on other stuff or save.

    A 30 year mortgage gives you more flexibility for a price.

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