Title:
Is a Fifteen Year
Mortgage a Good Bet?
Word Count:
579
Summary:
A fifteen year
mortgage is a great bet, if you’re inclined to gamble on a couple of things.
The first, obviously, is that you’re betting on your ability to pay the higher
mortgage rate over the long haul. If you
have your own business, you have control over your employment situation.
Keywords:
Article Body:
A fifteen year
mortgage is a great bet, if you’re inclined to gamble on a couple of things.
The first, obviously, is that you’re betting on your ability to pay the higher
mortgage rate over the long haul. If you
have your own business, you have control over your employment situation. Then the question turns to whether your
business or your career has the legs to be as successful for the next fifteen
years as it is now. Are you in a
cyclical business, affected by economic downturns? Most are, and if your fifteen year mortgage
is a stretch for you in the first place then it’s a major gamble. If you’re salaried and safe from the slings
and arrows of the economy, then it’s a safer proposition.
How Much is on the Table?
The savings in plain old dollars is substantial. One mortgage calculation tool compares the
figures generated by putting a $100,000 mortgage into fifteen year terms and
thirty year terms. The monthly payment
is about $735 a month over fifteen years and about $955 a month over thirty
years, with an interest rate that is a quarter of a point higher. The difference in total interest payments is
a little over one hundred thousand dollars: $169,000 versus $64,000. Those are raw dollar figures, however. What is not factored in is your savings on
your annual taxes engendered by the higher interest rate attached to the thirty
year note.
Money-Managing Alternatives
Also not factored in are a number of intangibles. Where would that extra money go if it weren’t
committed to a fifteen year mortgage payment?
Other investment opportunities, perhaps? Perhaps.
But there’s a reason they call leftover money like that “expendable
income.” The reason is that most of us
do expend it, rather than invest or save it.
So maybe the thirty year note means better family vacations, a few ski
trips during the winter, a nicer car – without doubt it means some added
flexibility in the family budget.
The value of retiring a mortgage in fifteen years is substantial, but so can be
the risk. If you’re seeking middle
ground, consider a mortgage that accepts accelerated payments on a spot basis. When your family income is humming along, pay
a higher monthly mortgage rate and you will get a larger figure attached to
your principal reduction. You will be
paying the higher (30 year) interest rate with those payments, so your annual tax
deduction will go up as well. You’re
knocking time off the mortgage, and maintaining your maximized tax
deduction.
All the Hypotheticals
Some money managers will call the fifteen year mortgage a sucker’s bet, because
if you took the monthly “savings” from the lower payment on a thirty year note
and added it to the “savings” from the higher tax deduction on a thirty year
note, the total in funds “saved” would more than offset the difference in total
interest.
It’s a great theory, probably has some merit, but how many of us will
diligently sock away our monthly “savings” and yearly “tax break” inherent in
the difference between a fifteen year mortgage and a thirty year mortgage? Approximately none of us. Most people look at home appreciation as
their return on investment, and let it go at that. Put in a financier’s terms, if a thirty year
note cuts your sleepless night quotient by a factor of twenty percent or more,
it’s probably worth it.