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Do you have a family member to help watch the baby? If not your child expenses will be far greater than 1k a month. Full-time daycare alone is about 1k a month in my area for a baby, and can go way beyond that if you want to get fancy. Another $500 a month on food and diapers and misc items for taking care of him/her. What about clothes? You're constantly buying clothes for babies as they grow so quickly. Toys?
When we bought we did not have children, and used up our savings as down payment. Then poof, birth control doesn't work one night and we have a daughter (whom I love beyond words). Anyway. I'm SOOOO glad we got a 30yr fixed rate. It definitely helps. A GOOD daycare is about $1600 a month for babies and the rate goes down as they get older. Food, clothes, repairs to the house because of crayon damage is about $2000 a month.
There was a time that you,d get a discount of around 25% for a 15 year term -- if 30 year rates were 6.5% you could get a 15 yr at probably 4.75%. That was worth the trade off. Now when you get a 30 yr term at 3.5% and they will give you a 15 yr at 3.375% the the discount of 4% is pretty meaningless...
True, the spreads are much smaller now - but I don't think they're that much smaller. 12.5 basis points seems too tiny. But yeah, even at 25 basis points I'd definitely go with the extra flexibility provided by the 30-year. 50 is where it gets debatable, IMO, and you need to start considering a variety of factors.
True, the spreads are much smaller now - but I don't think they're that much smaller. 12.5 basis points seems too tiny. But yeah, even at 25 basis points I'd definitely go with the extra flexibility provided by the 30-year. 50 is where it gets debatable, IMO, and you need to start considering a variety of factors.
Bankrate.com is quoting a .65% difference today between average 30 year and 15 year loans. I think that is definitely enough difference to consider.
True, the spreads are much smaller now - but I don't think they're that much smaller. 12.5 basis points seems too tiny. But yeah, even at 25 basis points I'd definitely go with the extra flexibility provided by the 30-year. 50 is where it gets debatable, IMO, and you need to start considering a variety of factors.
Don't forget pre-payments on a 30-year allows you to skip down the amortization table for early payments which are mostly interest anyway. That effectively reduces the actual interest rate on the note without having to commit to a higher payment every month on a 15-year loan.
Don't forget pre-payments on a 30-year allows you to skip down the amortization table for early payments which are mostly interest anyway. That effectively reduces the actual interest rate on the note without having to commit to a higher payment every month on a 15-year loan.
True, and the extent of this benefit again depends on the spread.
I ran some sample calculations. For each one, if you applied difference in payment each month between the 15 and 30 year to the latter (but with a higher interest rate), how many extra months beyond 15 years would it take you to pay off your mortgage:
50 point spread (3.0 vs 3.5) - 9 months
75 point spread (3.25 vs 4.0) - 14 months
100 point spread (4.0 vs 5.0) - 20 months
125 point spread (5.0 vs 6.25) - 27 months
Now, using a 400,000 mortgage as an example (to make the numbers pop a little more than doing it per-100k), you end up paying this much more for your house*:
*Obviously the numbers get a lot higher not just due to the higher spread, but because higher spreads correlate to higher base interest rates to begin with, as shown by what I used above.
Now, you might get 25% taxes back on those amounts, so yeah, the 15-year definitely loses it's luster a bit the more rates drop. I would think paying an extra $18K after taxes over 16 years is worthwhile to have the flexibility of a lower payment if needed.
Of course, all this assumes people actually have the financial discipline to pay their 30-year as if it were a 15-year - something which only a tiny fraction of people actually do. Similarly, you could say invest the difference and try to beat the smaller spread, but again that requires discipline to apply your monthly savings in such a way.
we were in almost similiar shoes as you guys were 6 years ago, except our combined salaries was 160k and had the sale of our condo used as downpayment, which was large and helped us to put down 40% towards the house. At the time, banks were telling us we could get a bigger mortgage or 15 year mortgage, but we told them no, wanted 30 year mortgage. As we knew kids would be coming along, and more likely have either daycare costs or SAHM. 6 years later, im now a SAHM and very glad we stuck with the decision to do 30 year vs 15 year loan. like others said, you can always make extra payment if desired as opposed to being "stuck" with high monthly amount every month on a 15 year note.
There was a time that you,d get a discount of around 25% for a 15 year term -- if 30 year rates were 6.5% you could get a 15 yr at probably 4.75%. That was worth the trade off. Now when you get a 30 yr term at 3.5% and they will give you a 15 yr at 3.375% the the discount of 4% is pretty meaningless...
Consider the opportunity cost as well of being "forced" to a 15 year payment when the "SHTF" (hope you can figure that acronym out) financially.
What I would do, if you want to pay off in 15 years...do a 30, then set up a recurring online billpay with your bank your checking account is with (so you can change it at YOUR discretion, do NOT do auto debit from mortgage company, i.e., "push" the payment, don't "pull" it) to automatically send the 15 year payment...but that way, you can go and change it to the smaller 30 year pmt at the click of a mouse of things get tough.
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