A weekly thread to discuss financial matters - from personal all the way up to global.
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Notes -
Given relatively high mortgage interest rates over the last several years, my partner and I have been been delaying purchasing a shared home and have spent the time building up a stronger financial position instead.
Watching the behavior of the 10 year Treasury, it looks like we're going to be stuck between six and seven percent for the foreseeable future, so I should probably start planning. Are there any good rules of thumb for choosing between a 15 and 30 year mortgage these days? I hate debt, so I gravitate to the 15 in all cases, but I also know that's a preference, and not based on anything rational.
I share your hatred of debt, but I ended up going with a 30 year mortgage anyway, for the reasons that Amadan laid out below. I calculated that getting a 30 year mortgage but paying it off as if it were a 15 year mortgage would see the house paid off in 16 years. That extra year of payments is not an insignificant amount of money, but I figured the flexibility was worth it in case I should lose my job, get hit by a bus, etc., and find myself short on cash at some point in the next 15 years.
I ended up paying the mortgage down pretty aggressively in the first two years, leaving me with only 15 years of payments to go by last summer. At the time, I debated refinancing to a 15 year mortgage, and I kind of regret not doing it since mortgage rates went back up again. But if I keep paying it off at the same rate, I should be mortgage-free in less than five years anyway, so I’m not sure it matters.
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Back when interest rates were 2%-3%, a 30-year mortgage was practically free money, but today, if you can afford the house you want with a 15-year mortgage, it will save you a large amount in total payouts. Most people take 30-year mortgages so they can afford more house.
Some people will say take the 30-year mortgage and make double payments when you can afford them, which saves you almost as much but allows flexibility should your finances become strained. That works, but requires financial discipline, and if you can comfortably afford the 15-year rate, it's still a better deal.
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