Is A Fifteen Year Mortgage A Good Bet

Is A Fifteen Year Mortgage A Good Bet

Is a​ Fifteen Year Mortgage a​ Good Bet?
A fifteen year mortgage is​ a​ great bet,​ if​ you’re inclined to​ gamble on​ a​ couple of​ things .​
The first,​ obviously,​ is​ that you’re betting on​ your ability to​ pay the​ higher mortgage rate over the​ long haul .​
If you​ have your own business,​ you​ have control over your employment situation .​
Then the​ question turns to​ whether your business or​ your career has the​ legs to​ be as​ successful for the​ next fifteen years as​ it​ is​ now .​
Are you​ in​ a​ cyclical business,​ affected by economic downturns? Most are,​ and if​ your fifteen year mortgage is​ a​ stretch for you​ in​ the​ first place then it’s a​ major gamble .​
If you’re salaried and safe from the​ slings and arrows of​ the​ economy,​ then it’s a​ safer proposition.
How Much is​ on​ the​ Table?
The savings in​ plain old dollars is​ substantial .​
One mortgage calculation tool compares the​ figures generated by putting a​ $100,​000 mortgage into fifteen year terms and thirty year terms .​
the​ monthly payment is​ about $735 a​ month over fifteen years and about $955 a​ month over thirty years,​ with an​ interest rate that is​ a​ quarter of​ a​ point higher .​
the​ difference in​ total interest payments is​ a​ little over one hundred thousand dollars: $169,​000 versus $64,​000 .​
Those are raw dollar figures,​ however .​
What is​ not factored in​ is​ your savings on​ your annual taxes engendered by the​ higher interest rate attached to​ the​ thirty year note .​

Money-Managing Alternatives
Also not factored in​ are a​ number of​ intangibles .​
Where would that extra money go if​ it​ weren’t committed to​ a​ fifteen year mortgage payment? Other investment opportunities,​ perhaps? Perhaps .​
But there’s a​ reason they call leftover money like that expendable income .​
the​ reason is​ that most of​ us do expend it,​ rather than invest or​ save it .​
So maybe the​ thirty year note means better family vacations,​ a​ few ski trips during the​ winter,​ a​ nicer car – without doubt it​ means some added flexibility in​ the​ family budget.
The value of​ retiring a​ mortgage in​ fifteen years is​ substantial,​ but so can be the​ risk .​
If you’re seeking middle ground,​ consider a​ mortgage that accepts accelerated payments on​ a​ spot basis .​
When your family income is​ humming along,​ pay a​ higher monthly mortgage rate and you​ will get a​ larger figure attached to​ your principal reduction .​
you​ will be paying the​ higher (30 year) interest rate with those payments,​ so your annual tax deduction will go up as​ well .​
You’re knocking time off the​ mortgage,​ and maintaining your maximized tax deduction.
All the​ Hypotheticals
Some money managers will call the​ fifteen year mortgage a​ sucker’s bet,​ because if​ you​ took the​ monthly savings from the​ lower payment on​ a​ thirty year note and added it​ to​ the​ savings from the​ higher tax deduction on​ a​ thirty year note,​ the​ total in​ funds saved would more than offset the​ difference in​ total interest .​

It’s a​ great theory,​ probably has some merit,​ but how many of​ us will diligently sock away our monthly savings and yearly tax break inherent in​ the​ difference between a​ fifteen year mortgage and a​ thirty year mortgage? Approximately none of​ us .​
Most people look at​ home appreciation as​ their return on​ investment,​ and let it​ go at​ that .​
Put in​ a​ financier’s terms,​ if​ a​ thirty year note cuts your sleepless night quotient by a​ factor of​ twenty percent or​ more,​ it’s probably worth it.

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