# The Debate Between the 15-Year Mortgage and the 30-Year Mortgage

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Have you ever been faced with the dilemma between buying a house with a 30-year mortgage or a 15-year mortgage? For many people, the 30 year mortgage is just a given and they don’t think twice about it. The payout per month is lower, so by going the 30 year route they can afford to buy a bigger house with their limited cash. This makes sense to most people since their goal is to buy the nicest house possible on their limited salaries.

But then there is the another (smaller) group of people that step back for a moment and realize that the interest rate on the 15 year loan is always less than the 30 year loan, so there are some obvious savings to be had by making slightly bigger payments with the 15 year loan.

The “Smart” Guy That Tells You To Go For The 30 Year Mortgage

As I stated earlier, the majority of the people just choose the 30 year mortgage because they can afford more house this way (or because it’s a lower payment each month), but there is one guy out there in YouTube land that has mathematical reasoning why you should extend your mortgage to 30 years. Here’s the video:

If you don’t feel like listening to this guy, here is the quick summary:

• His main question is, “What if you chose the 30 year mortgage and took your savings (vs. the 15 year mortgage) and invested it?”
• If you invested the few hundred bucks each month for 30 years and earned a rate of 7%, you would come ahead by over \$70,000.

Dave Ramsey Might Punch This Guy

I know Dave Ramsey wouldn’t like what this guy is saying, but his math is actually pretty sound. If you invested the few hundred bucks over the course of 30 years and it earned an average of 7% (which isn’t that crazy of a number), then you would come out on top. But, there are a few flaws in his argument:

1) There is no guarantee in that 7%, but there is in the saved interest – When he makes his calculation, he figures that his money will grow at a 7% interest rate every year for 30 years. Well, I’m sorry to say, but the market is way more volatile than that. Some years it grows by 10%, and other years it might lose 20%. There is absolutely no guarantee that the stock market won’t crash twenty years from now. If it does, then you not only don’t own your house, but your investments aren’t worth nearly what you calculated them to be.

If you make your 15 year payments though, then it is an absolute guarantee that you will save money in interest. That math works every time.

2) He is only considering the math – When you have a big giant debt on your house, that often weighs you down heavily for much of your life. When you first purchase that house, you look at the numbers and suddenly realize that you owe more money on that one single asset than you have ever owed anyone at any point in your life. And, if something were to happen (like a job loss), there is no way that you would be able to pay the remaining balance back to the bank! Having payments every month for the majority of your life does something to a person, and it’s nothing good. A mortgage free life is a stress free life, and I’m not seeing that anywhere in this nerd’s calculation.

3) How many people would actually invest the difference? – I have heard so many people say that they are going to invest the extra savings from their 30 year loan. About 75% of them never even start investing and the other 25% piddle out with their investments when they find something else that they want to buy, which typically takes less than a year. They fully intend to start investing again in the future, but it very rarely happens. The only guy I think might actually be investing the difference is the one in the video. He has just enough nerd in him to follow through with that. For the majority though, this guy’s reasoning just gives them the excuse to take out a 30 year mortgage.

My Take on the Mortgage Terms

Well, considering that I am trying to pay off my entire mortgage in a year’s time, you can probably guess where I am going to land on this topic. I would absolutely choose the option of the 15-year loan over the 30-year loan because of the savings in interest and the severe increase in cash flow once it’s completely paid for. If you can, I would even encourage you to take out a 10-year loan on your house instead of the 15-year. This would not only force you to pay off your house faster, but it would also force you into a reasonably sized house instead of that mansion down the street that you don’t need.

Do you have a 15 year mortgage or a 30 year mortgage? Why?

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### 12 comments to The Debate Between the 15-Year Mortgage and the 30-Year Mortgage

• My advice is to take a 30 year mortgage but calculate (and make) the 15 year mortgage payments. This allows you to pay off the mortgage much earlier than 30 years and have a cushion in the event that you need to lower your monthly budget at some point. Some people are advocates of having a mortgage to have a tax write off. I am an advocate of actually owning your home as opposed to buying it month by month with a mortgage.

Based on the average length of home ownership, you most likely won’t pay off the home, but you will pay down your loan – and accrue equity – much faster.
Anthony recently posted..Renting vs. Buying a Home: What is My Best Option?

• Decent advice Anthony, but typically what happens is a financial emergency, which prompts many to stop that extra payment, and then it just so happens that the additional payment never starts again. I would suggest buying a house where a 15 year loan is easy to make so that a 30 year is never even an option!

• I agree that most wouldn’t invest the money if they got a 30 yr versus a 15 yr mortgage. Personally, I go back and forth on this one. Part of me thinks the 30 yr is better simply because you can invest the difference. But then again, part of me would rather have no mortgage and not have to worry about having debt. Hopefully one day I’ll come to a definitive conclusion.
Jon @ Money Smart Guides recently posted..You Are Your Greatest Asset

• I have obviously decided to just get rid of the mortgage immediately. I know that I may be potentially leaving money behind, but I figure that I will more than make up with it by purchasing houses at a discount with cash.

• We have a 15 year mortgage. Sounds weird, but every month that passes by, I’m like yay one less month to go. For me, a 15 year mortgage is reasonable. I can imagine myself owning my home by age 30. 30 years is way too far for me to consider. I’ll be in my 50s, and I do not get excited by saying yay one less month to go on a 30 yr mortgage. Next December, I will have 14 years left on my mortgage. Way better than having 29 years. We did look at having a 10 yr mortgage, but the interest rate did not decrease significantly to consider it.
SavvyFinancialLatina recently posted..The Confidence Gap

• Thanks for the comment SFL! I’m with you – I can’t imagine having a 30 year mortgage, which I wouldn’t pay off until I turned 58… no thank you. Congrats on getting down into your, “yay, only 14 more years”. ðŸ™‚

• I refinanced into a 15 year mortgage a few years ago when the interest rates were bottoming out.

Sure, you could do 15 year and invest the difference, or 30 year and pay more, but I just want to be out from under more quickly.

I can afford it.

It’s a great feeling looking at your mortgage payment every month and knowing you’re paying more in principal than interest every single month. If you ever want to cry, look at a mortgage payment chart to see how little of your payment goes to actually paying your loan…

It makes me that much closer to being debt free and able to retire.

It’s a relatively secure investment – at least you don’t have to worry about a flash crash caused by high frequency trading.

I can live in my house. Ever try living in a share of stock?

It can be tough at times, to make the payment, cover the bills, and still stay on budget, but it forces me to keep on top of my money every month. Otherwise, it would be too easy to not pay the extra payment on a 30 year mortgage “just this one time.”

I love my 15 year mortgage. Less than 10 years to go and I’ll own my house free and clear in one of the highest real estate markets in the country.
Jack @ Enwealthen recently posted..Protect Your Money Online

• Awesome comment Jack! I especially like the statement, “I can live in my house. Ever try living in a share of stock?” It’s definitely the truth. When times are tough, it sure would be nice to have assurance in where you are living. If you are constantly in worry about your mortgage payment, you are going to gain a few gray hairs on your head and maybe even stress yourself out of a few years of life! A no stress life is the kind of life I aspire to have.

• My first mortgage was a 30 year. The interest rate was 8.5%. We went with a 15-year on our current house, and paid it off in 9. That made me happy, and my wife extremely happy. We now save and invest the accelerated mortgage payment every month. Out of sight, out of mind.
Bryce @ Save and Conquer recently posted..Cinco de Mayo, Celebration and Bar Tabs

• That’s awesome that you’re still putting away that payment, but instead of buying a bigger and better house with that extra cash, you are putting money away for your future. Nice work!

• Brandon

I most likely did not have enough income to purchase a house..but I did. Couldn’t qualify for a 15 year loan so took the 30 year which I hate but it does keep me diligent with making extra payments. Also, found a couple roommates so use that extra money for emergency savings and towards the house payment. Emergencies definitely come up with home ownership so the emergency fund is really important. I would love to get this house paid off! I do have savings but feel that since it’ll compound I don’t want to use any of that to pay off the house especially as it is starting to get some traction.

• Sounds like you probably shouldn’t have purchased the house, but you made some good moves by bringing in those renters. Build up that emergency fund to cover yourself for 6 months’ worth of expenses and then start paying down that mortgage. Oh, and do your best to increase your income along the way. Good luck Brandon!