Why We Chose a 30-Year Mortgage Over All Others
We’ve been in our new house for ten months. It’s been an experience to say the least. Some days I call it a money pit and others I enjoy being there. While I love the area and our neighborhood, the house leaves a lot to be desired for the most part. I’ve been elbow deep in projects ever since we stepped foot in the house. Hopefully it will get better and I know it will. I can say the house looks completely different on the inside than when we first moved in. My wife and I have been working it!
I’ve received questions over email before asking me what type of mortgage we got. Not sure why so many people want to know, but why not share. I have nothing to hide. We picked a 30-year, fixed rate mortgage with a 4% interest rate. Now, you will say the rates are lower right now, but when we bought last year, this was a good rate. I’m not complaining as the rate on our previous house was 5.75% and that was a good rate when we bought it. We are paying less right now on a more expensive house than we were before. I like that! Typically, the next question I get from people is why we chose a 30-year mortgage. Well, here’s why!
We Picked a 30-year over a 15-year Mortgage
When you have excellent credit, you get options. We could pick a 30-year, 20-year, and a 15-year mortgage. While there are many other choices, I like the consistency of a fixed-rate mortgage. It helps with budgeting and I know what I have to pay every single month with no changes. We don’t have escrow attached, so our payment doesn’t change.
When talking with our mortgage broker about options, I told her I wanted to stick with a 30-year mortgage. She told me the benefits of the other options, plus the payments and potential interest savings. Here is pretty much how it broke down.
From these numbers, you can see that we would save $67,819 if we went with a 20-year mortgage. We instantly decided a 15-year mortgage was out due to the monthly payment. It was nearly $600 more each month than the 30-year. Either way, why did we decided to go with a 30-year mortgage when we knew it would cost us the most?
Simple Answer: Safety Net
I knew we had a choice between what we wanted. We could technically afford all three options, but the 30-year still was my number one choice? Why though? I’m a huge fan of saving money and this option caused me to pay much more than the other.
Ever since being in debt, I’ve grown to want and need a safety net. I save up a lot of money and continue to do so every month. I have nearly 12 months of funds saved up in my regular savings account, my Digit account, and my credit union account. This doesn’t include any of the investments in my Betterment, Wealthfront, or Motif accounts. Why so much?
You never know what’s going to happen. I have enough money to keep us afloat for a year should something happen to both of our jobs. Is it overkill? Maybe. Do I care? No!
A safety net is important to me and that’s why we chose a 30-year mortgage. Each month we get to pocket nearly $300 compared to what we would spend on a 20-year mortgage and $600 compared to the 15. The best part is we don’t have any penalties for paying more each month or paying off our mortgage early. This means we can pay the mortgage just like a 20 or 15 year, but we aren’t required to. That’s the kicker.
We like Flexibility and Security
My wife and I like financial flexibility. We want to be able to do what we want with our money, when we want to. If we put ourselves into a 15-year mortgage situation, we would be paying nearly $600 more each month. That’s a lot of cash tied up in the mortgage. If you have discipline, then you can pay off your 30-year mortgage in 15 years. You just have to pay more. Hell, even if you don’t have the ability to pay that much each month, then you can switch your mortgage payments to bi-weekly. This will essentially trim nearly eight years off your mortgage. It’s like paying an extra payment each year.We want to be able to do what we want with our money, when we want to. That's financial flexibility! Click To Tweet
Our biggest reason for sticking with the 30-year mortgage is the security. With our current incomes, if one should lose a job, we could still survive on one income. This is a big factor. Losing that nearly $600 a month with the other mortgage could put us in a tight spot. I would rather have the option to pay less each month and work toward paying off the mortgage early than being forced to pay higher to pay it off in the same time. We like flexibility and security and that’s what the 30-year mortgage gives us.
The extra money we keep is really important to us, especially right now while we are doing a lot of projects. We are going to be redesigning the kitchen, finishing the basement, and much more. This all costs money. Keeping the extra money we would be spending is going to help us finance these projects with straight cash. We won’t have to get any loans or anything else. All from savings baby! That’s a great feeling and one I put a lot of value on.
What about you? Would you choose a 30-year for the same reason?