Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
You forgetting to include in your calculations that each month your 15 yr mortgage payment is higher than a 30 yr payment. If you take out a 30 yr mortgage, you can invest this difference each month and at the end of 15 years you'll have a good sum of money. Depending on your investment rate, after 15 years, this amount can be higher than your remaining balance on a 30 yr mortgage, so at this point you can payoff your 30 yr mortgage and have funds remaining. As I mentioned in an earlier post, your decision really depends on each person's financial position, but either way you're not going to end up with an incredible advantage that you'll be able to buy a second property.
I haven't forgotten anything. Indeed what you and others have mentioned regarding obtaining a 30 year mortgage and then using the money you have left over each month to invest isn't anything new or different or ground-breaking from my point of view.
I express my opinion knowing full well it might be unpopular with the current mainstream thoughts on personal finance because I believe this idea of investing money when you in fact have significantly negative net worth and significant monthly payments on loans isn't all that smart. Does the mainstream idea work? Perhaps, but you've got to admit it only does so for a few individuals. Will it continue to work going forward, and for a larger percentage of people? That is where I'll be bearish based upon what I'm seeing in today's financial markets and the global economy.
What I see happen more often than not are people living at or above their means. I do not see people saving for their future retirement AND saving to purchase cash-flow-making assets AND lastly pursuing things to get their net worth into the black (or more into the black). Sure it's easy to do one of those things at a time... but to do all three is critical if you want to really live the American dream and leave a positive financial legacy to your descendants.
If you continue to borrow money for houses and automobiles and other assets because of this notion that you can use your unborrowed money to earn more interest than you pay the loan-originators then I think you're not seeing the reality. The reality is that if this was a surefire way to get ahead, then the people who originate loans wouldn't be doing so... they would instead be investing all their wealth into the surefire investment vehicles you plan to put your income into (or they would charge more interest on their loans!). The reality also is that you have no idea what you're income will be in the future, what the value of the US dollar will be, and what the cost of those things you covet will be. Knowing all this, I think the truth is pretty straight-forward although there are plenty of naysayers out there who'll think I'm nuts. They think I'm nuts for paying off all my family's debts ASAP, they'll think I'm nuts for living in a residence completely paid for, and they'll think I'm nuts for expousing such a ridiculous notion to so many others. That's fine. Let's just agree to disagree and see how things shake out 30 years from now. Hey either one or both ideas is right, and even then mileage will vary significantly. Hopefully at retirement we're all doing well :-)
I haven't forgotten anything. Indeed what you and others have mentioned regarding obtaining a 30 year mortgage and then using the money you have left over each month to invest isn't anything new or different or ground-breaking from my point of view.
I express my opinion knowing full well it might be unpopular with the current mainstream thoughts on personal finance because I believe this idea of investing money when you in fact have significantly negative net worth and significant monthly payments on loans isn't all that smart.
It might not be groundbreaking, but in your other post you said that taking out a 15 yr mtg instead of a 30yr mtg will provide you with significant more net worth so that you can even purchase a second property. That's not accurate because once you take into account investing the difference each month (even to a 4.5% savings acct), your net worth between the 2 options will wind up close at the end of 15 yrs. I'm not saying which option is better, because it really depends on the individual and their finances as to which option nets a better outcome, but you really need to do ALL of the math and take into account everything before making a decision.
Financially it is better to take the 30 year option. It gives you the financial freedom of a lower payment incase something should happen where you can not afford the payment of the 15 year loan. Also, you could invest the money into something that would return a higher rate than your mortgage rate. This money will have compounded for 15 years and make you more money than you would have paid in interest on the mortgage. Then, the extra interest you do pay on the mortgage becomes a tax write off for the gains on your investments. Another thing to think about is cash liquidity. Equity is not easily accesible and will cost you money to refinance to access it.
Because there are other things I want to do with that money. Namely ... put it into the retirement account. Why pay off a mortgage that is only costing me 5 percent? Especially when I have to pay the government more than 30 percent taxes first before I can pay anything down.
I'd rather get additional tax benefits by putting more money into the retirement account ... so 30 percent of my tax and other money will earn 10 or more percent for the next 20 years. Because when you pay off that mortgage early ... it does come at a premium. Namely ... the 30 percent or so taxes that go to the government.
It's kinda ludricrous when you think about it ... I'd rather put that tax money to work instead and have a more comfortable retirement.
Location: Lots of sun and palm trees with occasional hurricane :)
8,293 posts, read 16,160,105 times
Reputation: 7018
Quote:
Originally Posted by sheri257
I agree with JBanker ...
Because there are other things I want to do with that money. Namely ... put it into the retirement account. Why pay off a mortgage that is only costing me 5 percent? Especially when I have to pay the government more than 30 percent taxes first before I can pay anything down.
I'd rather get additional tax benefits by putting more money into the retirement account ... so 30 percent of my tax and other money will earn 10 or more percent for the next 20 years. Because when you pay off that mortgage early ... it does come at a premium. Namely ... the 30 percent or so taxes that go to the government.
It's kinda ludricrous when you think about it ... I'd rather put that tax money to work instead and have a more comfortable retirement.
You just gave me an idea!
My monthly payments went down just now because I was able to find cheaper Homeowners Insurance (Miami). I just made my January payment and sent them that difference as additional principal. I think I will just increase my retirement annuity contribution by that much instead. It's pre-tax so that works better - I think???
I can always lower my contribution again if I need extra $$ for something urgent. I can even borrow against it if I have to.
My monthly payments went down just now because I was able to find cheaper Homeowners Insurance (Miami). I just made my January payment and sent them that difference as additional principal. I think I will just increase my retirement annuity contribution by that much instead. It's pre-tax so that works better - I think???
I can always lower my contribution again if I need extra $$ for something urgent. I can even borrow against it if I have to.
Does that sound good?
That's exactly what I do. As soon as one of my bills goes away or, is reduced, I put that extra money into the retirement account.
Same thing when I get pay raises ... it all goes to the retirement account because ... a big chunk would go to taxes anyway. Why not put that tax money to work instead? It pays off much more in the long run.
Afterall, you can always reduce the contributions later if you have to. And borrow on it ... if necessary (although obviously that's not recommended but, at least, the interest you would be paying is paid to yourself instead of some bank).
Just finished another 15 vs 30 decision on a small investment condo. About 15 years ago I decided on a 15 on my primary residence,,,,,and here I am 15 years later, PAID OFF. Now I feel more secure about investing. On the new purchase, my wife wanted to go 30 year and make extra payments,,,,but I won again, forcing the payment. LIFE happens, obligate and get on with it....now have a house, one rental house, one rental duplex and a new rental condo. Something went right. I did see some comments about cash. Yes, at times cash is king, however even with the current downslide in property, the property is more valuable than the cash. And for investors, good time to buy.
As others have pointed out previously, you have a good accounting of what you currently have. What you need is a good accounting of what opportunities you gave up to make the higher payments over the last 15 years. It could very well be that you made the right choice, but you can't figure that out just by pointing out the benefits of the plan you chose and ignoring the benefits of the alternatives.
I can't believe people get so stuck on the mortgage interest deduction and never seem to take into account what it costs to take it. The first thing you do is to give up your personal exemptions, and if you have any children, they add up pretty quick.
After buying my house, I ran the numbers and came out ahead by sticking with the standard deduction, so unless you've borrowed a lot of money to buy a big house or are single with no kids, the mortgage deduction may not be much help.
Another thing that nobody has mentioned in this thread is that you'll generally get half a point cheaper interest rate on a 15 year loan. If you're borrowing 100K, that $500 equals two months worth of equity.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
