3057: 5 Reasons to Choose a 15-Year Mortgage by Andy Hill of Marriage Kids and Money

[00:00:00] Have you ever noticed how a calm mind can really set the stage for a good night's sleep? That's the idea behind our new podcast, Good Sleep. Greg, our host from Optimal Relationships Daily, is here to help ease you into a peaceful night's rest with some positive affirmations. And these affirmations aren't just comforting. They can help ease anxiety and nurture positive thoughts, setting you up for true good sleep.

[00:00:25] So press play on Good Sleep Tonight, because a good tomorrow starts with a good night's sleep. Just search for Good Sleep in your podcast app, and be sure to pick the one from Optimal Living Daily. This is Optimal Finance Daily, 5 Reasons to Choose a 15-Year Mortgage by Andy Hill of MarriageKidsAndMoney.com.

[00:00:51] Three years ago, Nicole and I moved into our forever house. It was love at first sight. Compared to our previous 1,100 square foot bungalow, this new tri-level home had a bigger yard, an open floor plan, and neighbors that became instant friends of ours. When it came time to choosing the mortgage, we didn't want our dream home to turn into a nightmare. After doing some research, our mortgage strategy went something like that.

[00:01:20] Mortgage situations we avoided. Number 1. Interest Only Mortgages These are mortgages where you only make monthly interest payments and the principal of the loan does not decrease. If the principal of the loan never decreases, you are going to be paying on that mortgage for a long time. Number 2. Adjustable Rate Mortgages or ARM

[00:01:47] This is a home loan. This is a home loan where the interest rate adjusts after a set period of time, typically 3, 5, or 7 years, and could result in a higher rate than you originally started with. As the interest rates are starting to increase, this could be a very dangerous loan to be in if the term of your ARM is about to expire. And number 3. Private Mortgage Insurance or PMI

[00:02:14] This insurance protects the mortgage company from your potential default on the loan and is not insurance that protects you as the homeowner. If you put less than a 20% down payment on your home, you could have to pay an additional 1% of the mortgage loan value each month to protect your lender.

[00:02:33] For example, on a $200,000 loan, the homeowner could be paying an additional $2,000 per year or $166.67 per month in PMI. That's a lot of green. After we avoided those three money-stealing mortgage products, then it came time to discuss whether we'd want to go with a 15-year mortgage or a 30-year mortgage.

[00:02:59] Five reasons we went with a 15-year over a 30-year. Number 1. Less money for them, more money for us. When we decided to buy our new house, we were committing to a $200,000 mortgage. We looked at both a 30-year mortgage around 4% and a 15-year mortgage at 3%. The 15-year mortgage did require us to have a much larger monthly payment,

[00:03:27] but we would be saving almost $100,000 over the life of the loan if we went with the 15-year mortgage. Let me say that again. We would be saving nearly $100,000. The full-term interest paid on a $200,000 fixed mortgage would be $48,609 for the 15-year at 3%

[00:03:52] or $143,739 for the 30-year at 4%. That's $95,130 in savings. Instead of giving the mortgage company $95,130, we decided to keep it. Number 2. Interest rate savings.

[00:04:16] Similar to the point just mentioned, if you have the ability to go with a 15-year fixed instead of a 30-year fixed, you may see about a 1% difference in your interest rate. 1% may not seem like a whole lot, but when you're paying a loan for 30 years, it adds up. Refer to the $95,130 savings mentioned earlier. Hello pocket! Meet my friend more money!

[00:04:44] Number 3. Disciplined payments. If you choose a 15 over a 30, you'll have larger monthly payments. This is a deterrent for some, but a smart, disciplined move for others. In this example, the 15-year is about $426 more per month than the 30-year. For my wife and I, we wanted to insert that discipline into our monthly payment structure so that we could pay this mortgage off faster.

[00:05:12] That $426 and more because of interest savings attacks our mortgage principal each month and gets us that much closer to complete debt freedom. Number 4. Become completely debt-free. As previously mentioned, the 15-year mortgage created the quickest path for us to reach complete debt freedom. That's been a goal of ours for quite some time now, and we're only one year away from making that a reality.

[00:05:42] When we're completely debt-free, we're going to be able to live more, give more, and save more. We're looking at an additional $35,000 annually in our budget when the mortgage is no more. And number 5. Short-term pain for long-term gain. Yes, the monthly payment will be bigger in the short term on a 15-year over a 30-year, but choosing a 15-year now will help reduce major stress later in life.

[00:06:12] When we don't have a mortgage at the end of next year, I know that I will personally feel a gigantic weight off my shoulders. Right now, I feel the pressure to earn a lot more in order to cover the mortgage, our expenses, and plan for retirement. That stress will melt away when this mortgage is gone. The 15-year helps to accelerate the mortgage payoff process and brings us closer to a more stress-free lifestyle in the Hill House.

[00:06:44] You just listened to the post titled, Five Reasons to Choose a 15-Year Mortgage, by Andy Hill of MarriageKidsAndMoney.com. I think Andy made a lot of great points about why he chose a 15-year mortgage over a 30-year mortgage. When I was making this decision, I was certainly tempted by the lower interest rate on a 15-year mortgage, but I'm really happy that I chose the 30-year mortgage instead.

[00:07:12] I think the key difference between mine and Andy's thought process is that I'm not itching to pay off my mortgage as fast as possible. And it's worth it to me to pay more in interest so that I have ultimate flexibility. I can still pay it off in 15 years if I wanted to by doubling up my payments, but keeping my payment low is highly beneficial in terms of a job loss or drop in income.

[00:07:38] Many people find a lot of peace of mind in owning their home outright, but I find a lot more peace of mind in owning more liquid assets. Paying off my house right now would mean that 30% of my net worth would be stored in this tangible asset. I like the idea of my primary residence holding only about 10% of my net worth, so I can invest most of my money in income-producing assets.

[00:08:06] And so there may come a day when I put more money into my house as my net worth grows. I'm just not there yet. Furthermore, I do plan to keep this house as a rental eventually, so why not let the tenants pay it off? And that will do it for today. Have a great day and weekend. Thank you for listening. And I'll be back here tomorrow where optimal life awaits.