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.