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Choosing Your Fixed Mortgage, 15 vs 30 Year

Eleven years ago, before my son was born, my wife and I were shopping for a house.

The common advice of the day was to buy a house that you could barely afford, because you would get increasing pay raises every year that would make the house payment cheaper as time folds.

Another piece of advice was to not make extra payments on your house, but instead invest that money in the stock market.  While I don’t entirely disagree with that advice, I have to say the stock market route didn’t pan out for most of us!

Even though I respected the friends giving the advice above, I ignored both of these paths because they weren’t the best paths for me.

Since I hate debt, I couldn’t justifying buying a house that would cost me more than three times my salary.  Once I had the mortgage, I tried to pay it off as quickly as possible, using self-defined milestones that would make paying back debt if not an enjoyable experience, at least a bearable experience.

Why 30 Year Instead of 15 Year Mortgage

Now since I already stated that I’m not a fan of debt, you would think that I purchased a 15 year mortgage, but I didn’t.  At the time the interest rates were high enough that I had to go with a 30 year mortgage because of the smaller monthly payment.  Another factor in the equation is that my wife planned on being a SAHM someday. Since we knew that my wife’s salary wouldn’t be coming in as an income stream, we needed to get the most house for my salary without creating a hardship for us financially.  Unfortunately, at that time, that meant getting a 30 year mortgage.

So I took out a 30 year mortgage, how did I pay my house off in 10 years?

Well, for the first year, while my wife was still working, we doubled down our payments on the monthly payment, putting the entire extra payment towards principal.  The after that I continued to put and extra 50% towards the payment until it was paid off.  During a period when finances temporarily got difficult, I only put $100 dollars extra towards the principal.  Later, I made up the extra payments by using the money back from our taxes.  But having such flexibility might not have been the case if we had the larger 15 year mortgage monthly payment.

About six years into paying off the mortgage, I was able to refinance (for free through Well Fargo) and at that time I was able to choose a 15 year mortgage since both the interest rate were down and my payment would have been $200 less than the current payment at the time.

So in conclusion, you have to decide what works best for you and make sure you have some wiggle room.  Life and job employment are linear, and having a bit of an extra cushion can really come in handy during crunch periods.

Bests,

MR

30 Responses to Choosing Your Fixed Mortgage, 15 vs 30 Year

  1. I am a big fan of 15 year mortgages b/c they pay off in 15 years every time (assuming you don’t refinance or get foreclosed on). I do think you are the exception. Only 30% of homes are own outright. I’m happy you chose what works well for you. Obviously, you are #WINNING.

  2. Wow – that’s amazing! Good for you. I will be house shopping maybe in a couple of years… and I will keep this in mind. I hope to pay it off as soon as possible as well! Great job getting out of debt as soon as you could.

    • We saved up our 20% down payment to avoid PMI.

      I’m not sure if I would be in such a rush to pay off my mortgage now with such low interest rates afoot. The decision was hard back when I first bought my mortgage, but now it’s very difficult to decide.

      I think I would like to own my house free and clear, but if I could get a better return from my money (which seems pretty likely, I think I might try putting it in a safe investment that has a yield as high or hopefully higher than the mortgage interest rates).

  3. Your plan worked perfect, and aren’t you glad that is the plan you went with? Your house is paid off, your wife has been able to stay home, etc. If you chose one of the other suggested paths, you would have a bigger house (that you probably don’t fully use), debt, your wife might have had to work, and reduced piece of mind.

    We started with a 30 and quicky refinanced to a 15 once the rates started dropping. I am considering finding a cost-free refinance deal so I can get the payment down more. The goal is for the house to be paid off in 5 years.

    • Well Fargo send me a package that was a closing cost free deal (awesome!). It helped me decide to refinance.

      I actually got lucky (in a bizarre, sad way), in the fact that the investment markets went nowhere. Who would have guessed…
      Mortgage Free in 5 years would be great to!

  4. That’s awesome that you paid off your house in 10 years. (Any chance I could get you to do a guest post about that?) We are working on getting ours paid off, and have a 20 year mortgage right now.

    • I’d love to do a guest post on that (It’s one of my favorite things to talk about) :)

      In the low interest rate times of today, there is even less incentive to pay off your mortgage early. No rush, money is cheap… a 20 year mortgage sounds great actually!!!

  5. This is a good example of how you should always opt for a longer term loans. You can always pay more in principle, but still have the flexibility of not having to in case of financial difficulties. Good post!

    • Thanks, it worked out great in my case, and without the additional tightness of the 15 year payment!

      Today, the dynamics have changed though. I don’t know if I would go with a 30 year loan if I were to buy. In fact, I might not even try to pay my house off early (unless I was close).

  6. I love 5 year fixed….. I would borrow 3 year money too b/c I don’t think rates are going up. They amortize over 30 years of course.

    I pay down my mortgage in chunks, and plan to pay it down earlier than the normal time frame, so longer is better for me.

    • The 5 year and 3 year ARM was really popular before the crash because the interest rate were typically lower than the 30yr fixed.

      But since 30 yr rates are so low now I think it almost about the same. Why not get a rate thats fixed for 30 years than one that can adjust with the libor.

    • There are definitely more than one way to skin a cat, and what work for one person might not be the optimal approach for another.

      Sounds like you are destroying in the real estate market too :)

      • Lol that was before…I lost my business in 08 when the market went under. =(

        I’m waiting for the real estate market to bottom out before I jump back in. I think it still has a ways to go.

  7. I couldn’t agree more with your entire approach. We advised our grown kids to take a 30-year fixed to have wiggle room. They also paid down the principle as much as possible. Recently they refinanced at a very good rate. We’re very happy for them.
    If you have a 30-year mortgage & inflation gets bad you can just pay according to schedule with dollars that are worth less and less.

    • Very true! I think we paid off our house fast enough were we didn’t enjoy the benefits of the decreasing value of the house payment. But after 15 or 30 years, I’m sure it would be a much less percentage of an average persons paycheck.

    • Taking the 30 yr fixed is definitely the way to go considering how low the rates are and its a fixed P&I payment every month.

      Before 08 almost all the loans were adjustable rate Interest only mortgages, because that was the only way to afford the monthly payment and keep the debt to income ration low enough to qualify.

      Interest rates were just way too high before and property values were way to inflated.

      Now days 30 yr and 15 yr are really the best and safest loans

  8. Wow! I am really impressed. We just took out a 30 year fixed mortgage. With rates so low, I anticipate earning a large return than my mortgage interest rate on our additional funds. At least in the long term :)

  9. I did the math a while ago for someone…and if you chose the 30 vs the 15 with a lower rate but paid the 15 year payment you paid an extra few grand…but what is a few grand when you have that kind of flexibility!

    • That makes sense, after all the 15 year interest rate is lower… Luckily I paid mine of in 10 hooray! The amount I paid in interest was almost laughable (I think it was some small number like 4o or 5o thousand). This is one area that I crush it financially :)

      Wish I could say as much for my investments… (not that I’m going bad, it just that Warren Buffett has nothing to fear from me, lol)

  10. That’s sweet you paid your house off in 10 years! My wife and I also chose the 30 year mortgage, to get the smaller payment. We also put extra money back onto the principle every month, anything extra that we make each month is designated for the principle. Our goal is definitely to get this thing paid off in 15 years or less. My personal hope is 8 years, but that’s going to take a dramatic change in our financial future, which I am working towards.

    For us its more of a security thing to have a smaller payment, than to risk it and go with the 15 year mortgage and be forced to make a higher payment every month.

    • I was exactly the same way! I also hoped to pay off my mortgage in about 8 years, but I didn’t make it. It was to hard with my wife not working (at least at that time).

      I’d recommend considering using a spreadsheet, that worked incredible well for me.