Why We Chose a 30-Year Mortgage Over All Others

Why we chose a 30-year mortgageWe’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.

[row][column size=’1/2′]Mortgage Length[/column][column size=’1/2′]Total Cost[/column][/row][row][column size=’1/2′]30-year[/column][column size=’1/2′]$389,616[/column][/row][row] [column size=’1/2′]20-year[/column] [column size=’1/2′]$321,797[/column] [/row] [row] [column size=’1/2′]15-year[/column] [column size=’1/2′]$289,357[/column] [/row]

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?

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About the Author Grayson Bell

I'm a business owner, blogger, father, and husband. I used credit cards too much and found myself in over $75,000 in debt ($50,000 in just credit cards). I paid it off, started this blog, and my financial life has changed. I now talk about fighting debt and growing wealth here. I run a WordPress maintenance and support company, along with another blog, Eyes on the Dollar, which is another great personal finance blog.

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14 comments
Catherine says March 12

It’s interesting how different CAN and US is. The max mortgage you can take out in CAN is 25 years (used to be 30), and currently >3% is high. We’re in a fixed rate at 2.92%. This rate evern though you’re in an upwards of 25 hr mortgage is renegotiated every “term”- the standard being 5yrs. We’ll likely stay in a 25yr mortgage for a while too for the same reasons as you-safety.

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Money Beagle says March 12

We went the more aggressive route and went with a 15-year after we refinanced in 2011. It definitely impacts your monthly payment but I think it also forces us into making better decisions. For many people, the difference in the monthly payment is a temptation to spend. Without it there, you have to make choices and perhaps sacrifice spending that, in the long term, could be better for your net worth. As long as you thought it through, then that’s the most important thing. And, you can always pay extra on it so that you shorten the term anyways.

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    Grayson Bell says March 12

    I agree with you here. Most people would probably spend the extra money. I save it! Right now, I’m saving it up for remodels, but I understand how to pay my mortgage down. Most people look for the lowest monthly payment, but I do it for security and flexibility. I could even make more by just putting that extra money into my investments and out-earn the interest I pay. It’s just what you want to do with your money!

    Reply
Swifty says March 12

A nice post that is an easy read. We chose our mortgage based on how long we thought we’d stay in the area. We got a 12 year mortgage at 3.49% but paid it off in just over 5 years. We plan to stay in this house for a long time. Granted that the interest rate is low, we don’t have any investments that guarantee that return. Also note that we maximized our Roth IRA contributions during this time as well as our 401 k (up to the match).

The shorter the term of your loan, the better the interest rate that you receive. As long as you are able to invest in your retirement, pay off your mortgage.

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    Grayson Bell says March 13

    12-year mortgage? Never even heard of such a thing. I don’t see a problem with that and great job paying it off in 5 years. I don’t use the “how long we want to stay” because things change and I have no idea where I might be in a year from now. I don’t plan out that far ahead. When I do, life butts in and changes it!

    Reply
Clarisse @ Make Money Your Way says March 12

For me, I also prefer to choose a 30 year mortgage rather than a 15 year mortgage. I don’t want to get worried too much how much would be the monthly payment.

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Kevin Mercadante says March 13

Hi Grayson – As a former mortgage guy myself, your reasons for going with the 30 year fixed are solid. I always advised people to go with the 30, then make payments based on the 20 or 15 year loan. They could pay off the loan just as quickly, and save the extra interest, but they’d be able to default to the original lower payment in the event of a job loss or other financial problem.

On paper the 15 year is always the way to go. But life isn’t “on paper”. You face real life challenges that the best financial theories don’t accommodate. In my thinking, the 15 year mortgage is a recipe for being house poor. Sure, you pay off the loan sooner and save a bunch on interest, but for a solid 15 years you’re struggling to come up with an extra $600 every month. $600 that I think would work better in a savings account.

We should always incorporate liquidity into our financial plans. That’s what you and your wife have done by taking the 30 year loan. It will leave you room for savings, for making mistakes, and for enjoying the non-housing part of your life. Well done!

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    Grayson Bell says March 13

    You got it spot on Kevin. There’s not reason why you can’t pay off a 30-year in 15 years. If you have the discipline, then you can do it easily. I don’t want to be forced to pay more just for the idea of paying off my mortgage early. If something happens, aka life, then I want to have that $600 a month in my corner to use to get through it.

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Kayla @ Everything Finance says March 13

That is why I went with a longer term for my car loan too. I can always pay it off early, but I have a cushion for the months where my income is lower so I don’t have to much such a high payment each month. It makes sense to me why you chose the 30 year mortgage.

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    Grayson Bell says March 18

    Exactly. You do need the discipline to pay it off early if you can, but it’s nice to have the security of a lower payment.

    Reply
Sarah says March 27

This is exactly the thinking we have used – so glad to see it worded so well! We were very tempted by the 15 and 20 year loans, but in the end the flexibility is what we crave. We are using the “extra” money to max our 401k and Roth IRA contributions and to invest in our brokerage accounts. In the coming years that might change, but because we went with the 30 year loan we have the flexibility to change whenever our situation does.

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    Grayson Bell says March 28

    Exactly Sarah. It sounds like you and I think alike. It’s about the flexibility. If you want to pay off your mortgage early, you can do it. Having a 30 year mortgage provides more options as your payments are lower.

    Reply
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