15 yr v. 30 yr mortgage

IMHO it all depends on your own discipline.  When I was looking at it, it was worth the difference in cost to have the flexibility to pay off as I saw fit.  You can always pay more toward the principle and pay off in 15 years if you like, but like you said, you can lay off the extra payments if your job goes away or something.  I went the 30 yr route.  I've done this on cars too.  Take a 4 yr note and pay in 2.5 or 3 yrs.  I like to do this because I get 26 paycheck in a year, so 2 "extra" that I don't budget in per year.  I'll through these toward some type of loan usually.  I also pay extra on all my bills so it's pretty common practice for me.  

But if you just want to get it out of the way and have relative job security, then there's nothing wrong with the 15 yr.  I don't think you can go "wrong" either way.

Usually the 15 year rate is a bit lower.

We were in this situation and decide to live with the little bit higher interest rate and take the flexibility of the 30 year loan.  And then we just set up extra payments to achieve roughly the same end goal.   We did this solely to take off the pressure of the 15. 

The only thing that bugs me, about refinancing, is having to start over the clock.  If we'd already been in the house for 10 or more years, I would have done the 15 year on principle.   

But we pick an amortization period - mine is 25 years ... we were going to go with 30 but could afford the 25 but it was important to still have the flexibility to double up payments and put lump sums each year.  So, like others said, in case anything happens, there's a fall back.  It really works if you can be disciplined and pay more.

So, can you get a little bit lower interest rate with 15 though?  That was our experience.  If not, it really doesn't matter unless you don't trust yourself to make the payments.  If the interest rate on the 15 WAS lower, in your case, I'd for SURE do the 15 since the payment is the same (or better).

Just ask them to calculate the loan based on 9 years or 8 years.  Take that amount and pay it every month (just make sure they apply the extra to principle.)

We just re-fied our current 15 with 7years left to another 15 (went from 30 to 15 about 7 years ago).  I asked for the payment for 7 years and pay that amount.  The loan will be paid off in the same amount of time but with less interest.

So when all is said and done we will have paid off our house (that we started on a 30 year loan) in about 14 years.

My advice, go for the 15... if you can make the payments you'll feel so much better about it

You mentioned starting your own business.  I tried to refi as I was starting my own business and got turned away because I was self-employed.  This was in 2009 when the mortgage industry was in the toilet.

That being said, we started with a 30 year note in 1996.  We refied to a 15 year and then to a 10 year note.  We will have our house paid off in 17 years (next June woohoo!!).

If you go with the 30 year note and the idea that you will pay it off early, you need to know that you are disciplined to make those payments. 

If you are serious about self employment, go the 30 year route so that you have cash flow options.

Rates are low, but you sound like you're in a great situation with finances. 

If you skipped refinancing and just plowed the additional into the current mortgage, how quickly can you pay it off?  (Yea, you lose a bit on the rate, but if your balance is relatively small, your overall savings won't change a lot.) 

I wanted to go with a 15-year mortage when we bought our current house (16 years ago) but we didn't for a few reasons.  While rates are lower than when I converted it a while back (2003?) the difference in actual interest is about $500/year, and I don't see the compelling need to pay several thousand $$ in fees etc. 

When I was making this decision earlier this year (well, for a purchase, not a refi), the 15 yr loan was 0.5% lower interest than the 30 year.  To me, that was a big deal.

But that isn't enough consideration IMHO.  I knew I was sinking every last penny of my savings into the downpayment to GET the 15 yr loan at that interest rate (I had to be putting 20% down).  I own both my cars free and clear, I'm in the military so I have free health insurance, and I have a virtually guaranteed job (at least for another 3-5 years), and I have car/home insurance.  So, I made the educated decision that completely emptying my savings was worth the risk.  There wasn't much in the "emergency expenses" department that could come up that I couldn't afford out of my monthly pay or (worst case) on a credit card.

Then two months later I got a lottery spot to Kona and now had to budget for a REALLY expensive trip to Hawaii.  A "need"? No, but an opportunity that will only come around once in a lifetime.

Had I known I was going to Kona I probably would have gone for the 30 year loan so I would have the flexibility if I needed it.  You can sub my trip to Hawaii for any of the other things I mentioned (health care, car repair, loss of job).  Bottom line, I could use some extra cash right now and there is nothing I can do about having to pay the mortgage.

That being said, I do not regret my 15 year loan.  I love seeing that loan balance amount go down and down and down every month.  My other house (a rental property) doesn't decrease nearly so fast.  And 0.5% interest rate difference is a LOT.

Also, you mentioned perhaps not having them escrow your taxes/insurance?  Not sure what bank, etc. you are going through but I know that my lender said the interest rates would be higher if the taxes/insurance were not escrowed.  I think close to 0.25% higher.  I was ticked because I was looking forward to NOT having them escrowed since I was putting 20% down.  But there is no way I would have made enough money in interest keeping the cash in my own savings account to make up for 0.25% on a mortgage balance...so, if you were thinking of not escrowing you might want to check the effect on the interest rate.

I've been in the banking world for 15 years and people ALWAYS say they will take the longer term loan and pay extra when they can.  THEY NEVER DO!!  If the 15 year loan works in your budget then take it on and go for it.

Never is probably wrong.  I know many Dave Ramsey followers who always pay their 30 year like a 15 year.  I have a 15 year, but only because I went from 6.5% on a 30 year to 4.25% on a 15 year and the payment remained the same.  I can afford it because I have no other debt.  No student loans, no credit cards, no nothing.  Sometimes I would like to have the 30 year because even though I have good job security, I could get hurt and not be able to work. (Airline/Military Pilot)  Then paying my 15 year would be a challenge.

If you can swing the 15 year (which it sounds like you can) I would do that. The rate is lower so the overall cost of the home will be less. Your equity will be build faster so if you want to start a business you can use an equity loan for that. In the meantime pay it down as fast as you can.

Who knows how much longer you'll be able to deduct the interest!!?

PS: I've been in the banking business for over 25 years.

I know many people who do.

Realistically, if you can make a better return on your investment elsewhere then it's better NOT to pay cash.  But in today's market with houses not really appreciating much, that would mean you would need to find a place to invest that cash that would make more than your interest rate (3-4% or so).  I can't think of many investments making more than that (guaranteed) these days.  Maybe ten years ago you could find a savings account making that much, but ten years ago mortgage interest rates were also over 6%...

The only "con" I can think of is that you are tying up your cash assets into a semi-untouchable account.  I think that is why people don't do it more often.  I think that unless I had a lot more cash laying around I wouldn't sink ALL of my cash into a house.  For example, if I had $200,000 and I was buying a $200,000 house I'd probably seek out a loan for, say, $50k of it and put $150k down.  Then I would be paying minimal interest while keeping some of my cash on hand for whatever...car, college, BIKES, renovations, etc. :D

If I had $250k in savings and was buying the $200k house I would just pay for it with cash.  IMHO it's always better to pay less interest.  Don't listen to people that say "but it's my only tax deduction".  Stupidest logic EVER.  Say you pay $10k in mortgage interest...if you had to pay taxes on that income you would only pay about $2500, leaving you $7500 richer in your pocket.

Thanks for the insight. I know stocks are pretty good investments - esp. if in for the long haul. (said like a stock broker's daughter!) I think the housing market will rebound but not for several years... decades maybe...or at least for as long as many live in a house before moving up or down or retirement etc... so I can't see losing money in housing with home prices and mortgage rates low. I think no matter how new a home is, there are always costs with houses which tend to come at unexpected times. Yeah, rents always go up and most count on that but being hit with sudden costs like repaving a driveway or taxes for new sidewalks or new trees after the other ones died...hurt wallets big time. We're looking to buy now ourselves and many new homes look awesome but they are not as large as same costing older homes so either we bite into some age related problems with houses or bite into a larger investment. Either way, they will likely affect spending similar money...just in different capacities. Rambling... sorry....trying to weigh pros and cons on the internet here LOL