15 Year vs 30 year Mortgage - The Truth About Just Investing the Difference

[@jessicasquire]

It's time to acknowledge that a return to 3% mortgage rates may be unrealistic. If homeowners are forced to sell, we will likely see a drop in home prices, leading to lower property valuations. I know I'm not the only one who shares this outlook__

[@Lemariecooper]

If you're in the market, now is the time to buy. Home prices are unlikely to decrease further, and if interest rates do decline in the future, refinancing is always an option|

[@Erikkurilla01]

In my opinion, home prices need to decrease by at least 40% before the market finds balance. For those unsure about buying property right now, seeking advice from an experienced financial advisor for optimal portfolio allocation is crucial. This approach has worked for me-I’ve managed to stay profitable over the past five years, accumulating nearly $1 million in investment returnss

[@AngellLevey]

That's impressive! I'd be happy to share more details. I understand the hesitation, especially when it feels like many firms offer similar services. However, finding a trustworthy advisor has been key to my success...

[@Erikkurilla01]

My CFA Julianne Iwersen Niemann, a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market._

[@AngellLevey]

Thank you for sharing, I must say, Julianne appears to be quite knowledgeable. After coming across her web page, I went through her resume and it was quite impressive.

[@nehemiahstewart]

Great video. Another key is dont overpay for a house. Stay between 25-33% of your take home income regardless of mortgage terms.

[@SchoolofPersonalFinance]

Thanks Nehemiah!! Hard not to overpay in this crazy market lol but you are absolutely correct!!

[@SchoolofPersonalFinance]

Which one do you prefer?? Let me know in the comments below 👇👇👇👇

[@USAproud9630]

I'm not that educationally incline about finanaces, but it seems like we're talking about two things here. One is mortgage and the other is investing. I normally look at the rate as the most important thing before any term, when making a decision. Secondly, maximizing out Roth and 401k, while paying extra so I can payoff the mortgage on the year I will retire, so no debt.

[@SchoolofPersonalFinance]

@@USAproud9630 thanks for your comment!! It does seem like two different things but I think that when we are talking about paying extra to your mortgage it is an investment decision. Either you are investing in paying down your mortgage which offers a guaranteed rate of whatever your mortgage rate is compared to investing in another asset (stock, bond, real estate). What if you didn't have enough funds to do all your doing? You would have to decide between paying extra to your mortgage or maxing our retirement accounts. Thats an investment decision. Anyway sounds like you are doing pretty great!!

[@USAproud9630]

@@SchoolofPersonalFinance thanks for the response! Appreciated!

[@leahrn78]

I dont know. Paying tens of thousands of dollars in interest more for a house just seems like a huge waste

[@SchoolofPersonalFinance]

leahrn78 yeah the question is compared to what? I would gladly pay the interest if I was able to earn more elsewhere. Obviously nothing is guaranteed but here is a simple example of what I mean. Would you borrow 1 million dollars from me for the next 30 years and pay me 4% interest if you could turn around and lend it to someone else for 7% per year? You would be paying me tens of thousands of dollars in interest...is that a waste if you are turning around and netting $30k a year on the spread?

[@silviobandeira74]

At 45 I took a 20 year, not ideal but it was my best bet. Keep up the good work! I really enjoy your videos.

[@SchoolofPersonalFinance]

Thanks Silvio!! 🤑

[@anniealexander9616]

I took a 15 year mortgage and paid off my home in 10 years. Now I'm looking for a beach home to rent for extra income and a free vacation.

[@SchoolofPersonalFinance]

That is great Annie!! 👍

[@dougschemmel99]

Same:)

[@dennyinirio1786]

Great advice,......good way to look at a 30 Yr loan,...

[@SchoolofPersonalFinance]

Thanks Denny! 👍👊🤑

[@dianebarone1542]

Congratulations on 10,000 subscribers. I am still traumatized by 2008 and how long it took to make back that money. With that being said, my husband and I will be 65 in 7 years and the plan is to pay off our 15 year mortgage within those years. Yes - the thought of it makes us feel warm and fuzzy.

[@SchoolofPersonalFinance]

Nothing beats the warm and fuzzies 😃 Thanks for sharing!

[@dacripe]

Good job with the video Rich! I think you are the first one I have found doing this argument who actually takes into account life scenarios. Most use the math only way to show you a 30yr is better with an extra $200k per your scenario. My wife and I have a 15yr because it was actually .75% lower in Sept at the bank we found and I could afford the extra $. We plan on paying it off in 15yrs and moving around then to a cheaper shack (youngest kid graduates in 15 years from college). Another thing you financial guys need to consider is that people don't stay with one property for 30 yrs (or 15yrs). I think the average is between 5 and 7 years for a home. I've moved to 4 homes in 13 years (moving for jobs is another issue). We got 30 yr mortgage on the first one (refi to 15 a few years before selling), but 15 on the rest. Had we not done a 15yr, we would not have enough equity built in for the down payment on the newer (larger) homes after selling our old home. We could have invested the additional money and used that I guess for the down payment. I just don't trust the timing of the stock market. Imagine needing that money to buy a new home after the crash of 2000 or 2008. Anyway, keep up the good work!

[@SchoolofPersonalFinance]

Thanks for your thoughtful comment David!! Sounds like you are doing great 👍

[@nikophilopoulos833]

Sooo I was hoping you would touch on how soon you begin dropping money in as equity vs paying interest up front. 30 year makes more sense to me overall but the part that confuses me is that on a 15 year you’re expected to pay less interest and therefore would begin owning the money that you pay into it much sooner. Is that something to consider or is that something that seems to make sense but actually works out to be arbitrary, or completely false because any extra money into a house would go in as equity wether it’s 30 or 15 yr?

[@christopherjacob6209]

what about the All in one loans?

[@627horsepowers]

Nice video. 11:55 In my opinion, I would accelerate the investments instead.

[@SchoolofPersonalFinance]

Yeah all depends on risk tolerance, time horizon blah blah blah...Nice to have no debt entering retirement though.

[@wendynoble6545]

I'm someone who doesn't like debt and my urge is always to throw extra money at my mortgage. I've had to have a strong discussion with myself and develop the discipline to build my investment portfolio instead because that's the right (if not lost comfortable) strategy for me now.

[@SchoolofPersonalFinance]

Just the fact that you are having that discussion with yourself and choosing between those two options you are already winning the game 👍 🤑

[@fornos123]

To be honest a 15 year loan is risky if you’re going to be tight. When it’s time to replace the roof, when you need plumbing service and you’re toght, when that kitchen needs replacement and you’re tight that’s when things get complicated. What if someone loses a job? Just saying

[@fredswartley9778]

I like the 30 year mortgage. The flexibility and security of lower payments is worth paying more in interest. I think I would take a 30 year mortgage and try to invest as much as possible.

[@SchoolofPersonalFinance]

My thoughts exactly…thanks Fred!

[@JamesBondEsq.]

Great content and wise counsel. Thank you! Suggestion for a future video: In the real estate mortgage world, homebuyers, refinancers and investors don't simply have a binary choice between 15-year and 30-year mortgages. 20-year mortgages are also an option. ("Ask and receive," a wise man once said.) Additionally, as you've shown in prior videos, bi-weekly payments reduce both the interest paid and the mortgage length without expending additional cash--a can't lose proposition. A 20-year mortgage with bi-weekly payments worked out great for me. Thanks again.

[@SchoolofPersonalFinance]

Yes we can’t forget about the 20 year! Thanks!

[@user.hh.1]

What about the interest savings from 15 year?

[@SchoolofPersonalFinance]

Yeah it’s about half a percent right now less for 15. I did talk about that in the beginning when comparing the two but depending on your situation and goals I still don’t think that is enough of a reason to lock into bigger payment if you will be tight month to month. I would rather be able to invest that money but different strokes for different folks 🤑

[@pixmation-h3t]

Hello, Found you channel and love all your information. I am 55yo and still have 24 years left on my mortgage. My dilemma is if I should start paying more into the principle to pay the mortgage off in roughly 15 years or to invest instead.

[@briankow239]

Just whats worrying is the risk factor and if you're highly leveraged on your rentals. What happens in case of vacancies, job losses, its a heavy burden if you has to carry it especially in strange difficult times like now.

[@SchoolofPersonalFinance]

That’s why I favor the flexibility of a 30 year mortgage.

[@jodavila16]

Great Video very clear, thanks!!

[@SchoolofPersonalFinance]

Thanks Jose!!

[@cjp302]

My opinion if you plan to work until retirement age--- Take on a 30 year. Get employer match on 401k, then max Roth(s). Then it's your choice to max out 401k or pay down house.

[@SchoolofPersonalFinance]

Sounds like a good plan to me!

[@gsdgirl8967]

I don't know if I agree with u. Yeah if u can get 6% not always! Also, don't forget how much you overpaid the house if you really keep it for 30 years. If I refi to 30 year I would be paying $900 in interest yeah I am paying more for 10 years but only $260 in interest. Did not want to give my hard earned money to the bank.

[@barryN69]

Congrats Rich 10k💫💯🎉⭐️

[@SchoolofPersonalFinance]

Thanks Barry!!

[@YenVo-ve3br]

Great information! Thx

[@SchoolofPersonalFinance]

Thanks Yen Vo!!

[@YenVo-ve3br]

School of Personal Finance congratulations on your 10K

[@SchoolofPersonalFinance]

@@YenVo-ve3br thanks! Appreciate it!!

[@DeathScouter]

Sorry, but I believe your math is way off. You're not considering total out-of-pocket costs for either mortgage, which is significant. Here's how you should have done the analysis: $1,686 for 360 payments means you're out $606,960 by the time the house is paid off. In contrast, the 15 year mortgage is $2,667 x 180 payments for a total of $480060... a difference of $126,900 with the 15 year mortgage. BUT to continue your investment portion of the exercise... For the 30 year mortgage you're investing $981 a month for 30 years (981x12= $11,772) $11,772 invested annually at 6% return for 30 years means you end up with $934,494 For the 15 year mortgage you're investing the full house payment of $2,667 (2667x12 = $32,004). $32,004 invested at 6% return for 15 years means you end up with $749,265 SO NOW.... 30 year - you take the total you paid to pay off the mortgage $606,960 minus your investment earnings of $934,494... and you've come out with $327,534 and a paid off house 15 year - you take the total you paid to pay off the mortgage $480,060 minus your investment earnings of $749,265... and you've come out with $269,205 and a paid off house The pre-tax difference would be ONLY $58,329 more than the 15 year mortgage, which is NOT the $209,815. you think you earned. Now.. keep in mind that you will owe about 20% capital gains taxes on your earnings, so.... your 30 year investment is not $934,494 but actually $747,595. The 15 year gain would go from $749,265 down to $636,412 Rerun the math to see what you actually end up with in your pocket after paying off your house.... 30 year gain is $140,635.... 15 year gain is $112,853. So after 30 years of investing, your actual "in your pocket" difference drops to only $27,782 which is less than half of your pre-tax numbers and still NO WHERE NEAR the $209,815 you thought you were making. The additional amount of interest you're paying on a 30 year mortgage can't be ignored.

[@SchoolofPersonalFinance]

Hi Paul. I posted this one a while ago so I had to go back and watch it again. Sorry, but I think my math is correct. If you want to do it based on total out of pocket costs then you also have to include the total out of pocket investment. If we are going to compare apples to apples it needs to be the entire amount that has been paid out of pocket over the 30 years for each of them and the point is to have that out of pocket amount be the same ($2,667 in this example) so we can see who ended up with more money. There is no point during the 30 years when one is laying out more money than the other (it is always $2,667)...the difference is if they are putting it towards the mortgage or towards the investments. So the total out of pocket cost for 30 year mortgage is $606,960 and the total amount invested into the market is $353,160 ($981x360 months) so a total out of pocket of $960,120 ($2,667x360 months). For the 15 year mortgage total out pocket for the mortgage is $480,060 and the total amount invested is also $480,060 ($2667x180 months) so also a total out of pocket of $960,120 ($2,667x360 months). This makes sense...they are both laying out the same amount each month. The difference is how they are dividing that monthly payment between paying off the mortgage vs investing. When it is all said and done at the end of the 30 year period they both own the house free and clear but the one that started with a 30 year mortgage has an investment account worth $985,429 vs the one with a 15 year mortgage having only $775,614. A difference of $209,815. They have both paid out a total of $960,120 over the 30 years between paying off the loan and investing. Hope that makes sense.

[@jacquelinemcclendon6004]

THANK YOU!!!

[@SchoolofPersonalFinance]

👍🤑

[@jamie5872]

Great topic to discuss and I found this video very informative. I'm in the process of obtaining a new mortgage and the banks I've spoken to recently are all pushing 25 - 30 year mortgages. However, my mortgage will be for 15 - 20 years as I just want to clear the debt ASAP. Cheers Rich.

[@SchoolofPersonalFinance]

Thanks for sharing Jamie!! Go for it!! Will be a happy day when you stroke that last payment 💵👍

[@ricardomorales3096]

I like to talk with you about financial planning Rich.

[@SchoolofPersonalFinance]

Hey Ricardo send me an email [e-mail]

[@petruspendaauala2651]

It's great to meet you again friends. The great algorithmics brought us here again... I wish you everlasting financial freedom!

[@SchoolofPersonalFinance]

Hi Petrus!!

[@jamesjiahaoyang7876]

Hi I’m a fellow CFP practitioner in Singapore. Just want to say what you share is really good and I’m also sharing the same advice as u. But this is not something a lot of people believe and widely accepted. So I’m really excited to have chanced upon your video. Can I have your personal contact and get to know u better?

[@SchoolofPersonalFinance]

Hey James. You can email me at [e-mail]

[@dlg5485]

I don't understand why you use such low rate of return in your examples. Admittedly, I have a higher risk tolerance than most and invest over 90% in stock index funds and less than 10% in bonds, but I can't imagine anyone who is investing rationally only seeing a 6% return. I've averaged 15% since the Great Recession recovery without even trying. Yes, I know this last decade has been overheated and is not typical of the last 100 years, but even before that I was averaging 11%. So why such conservative numbers?

[@SchoolofPersonalFinance]

Yeah I hear ya. Reality is the average investors rate of return is well below by the market averages. A big reason for this is selling when things are bad and thinking things will go up forever when things are great. If an average investor has a 70/30 portfolio and they invest in low cost broad based index funds a 6% rate if return is very realistic over a long period of time. We have been in such a strong market for 10+ years now that it does seem easy to get double digit returns each year but it’s just not easily sustainable. Billionaire hedge fund managers can’t deliver double digit returns each year. I guess I would rather error on the side of caution rather than lead people to believe they can expect these high rates of return to always be there.

[@dlg5485]

@@SchoolofPersonalFinance I can see that perspective. I never sell anything unless I'm replacing one fund with another due to a strategy change. I tend to be a strictly buy and hold investor, utilizing cost averaging by purchasing shares every payday no matter what the market is doing and re-balancing once a year. That has worked extremely well for me over 20 years.

[@SchoolofPersonalFinance]

@@dlg5485 That’s the way to do it! 👍

[@Eclipce051]

Patreon?

[@SchoolofPersonalFinance]

No patreon ...but you can work 1-1 with me. Check it out over at www.schoolofpersonalfinance.com

[@tutterbrown9987]

This guy is the human version of Kermit the Frog

[@Birdofgreen]

One thing to keep in mind with a 30 year mortgage is that you are paying more to interest up front than you are later on. Using the $400k loan amount in this example, your first payment will be $1,000 to interest and $686 to principal. If you take $688 of that $981 and pay it to the home, you save $998 in interest or a near 45% return on your investment. Later on in the mortgage (roughly 12 years in this example) you could take the entire $981 and put it towards your home but only save $700 in interest. The math still always works out better to invest in the long term if you can maintain the average return. It is just important to remember that there is a massive diminishing return on paying ahead on your home. Saying that, I have been paying mine aggressively to shave years off the 30 years. By about 9 years in I will be about 20 years of payments into the home. After that point I am going to switch to investing. A 19 year mortgage with the 30 year mortgage payments for the last 10 years seemed like a happy comprise for my budget.

[@SchoolofPersonalFinance]

Hey Kevin thanks for your comment! You always make me sit down, have a drink, and think much more than I would like to when replying... Lol I say that with ❤️. You are paying more interest in the beginning because you owe more money. The interest payment throughout the loan is just math. The outstanding balance x interest rate divided by 12 months. 1st payment - $400,000 at 3% /12 months = $1,000 interest. Later on in the loan you owe less money so you owe less interest but the payment is the same so more goes to the principal. The $688 additional payment will save $998 in interest but that would be over the remaining term of the loan. $688 at 3% over the remaining 359 payments is $998. Same as investing it and earning 3%. The diminishing return is true just like with investing. The longer the time horizon the more beneficial it will be.

[@Birdofgreen]

I hope it is a good drink at least! I will have to buy you one with some of the money you've saved me if we ever end up in the same room. As usual, wonderful video, I forgot to say that in the initial comment.

[@rizzleriz4457]

30 yrs is good for investment mortgage but not for personal. Stop scaring ppl