⚠ Why you don't do a 15 year mortgage | Fin Tips 💰

There are many financial gurus out there that advise you do a 15 year mortgage to pay off your home faster. With a mortgage you are locked into the deal you make so that debt obligation is on you. At jazzWealth we are your financial advisor and it is our advice that you do NOT do the 15 year mortgage. If you want to pay off your debt faster then do the 30 year and make larger payments. The difference is negligible BUT you get the piece of mind knowing you can change your payment is times get tough financially.

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[alex_erazo]

My brother and I recently bought similarly priced properties. I went with a 15 year note and he went with a 30 year. We both aim to use them as investment properties. The 30 year note means my brother has a way better cash on cash return because he can cash flow hundreds more per month. However, I think the 30 year note is a honey pot. The true total cost of his loan over 30 years is $63, 000 more than mine. Even if he pays in best case scenario 15 years, it's thousands more due to the higher interest date. The key here is to buy a property that is below your max approved mortgage so even a 15 year note makes sense in terms of a monthly payment. $63, 000 is a lot of money for "peace of mind" insurance having a lower monthly payment for emergencies. That $63, 000 is easily another down payment or investment capital for the stock market. That money is real money paid towards interest that eats away from your lifetime earnings.

[elliottmiller]

I've done a lot of thinking as to why DR recommends the 15 year / 25% percent of takehome pay with no PMI and it is a behavioural one.

If you discipline yourself up to set up such a house, have no other debt, and have a 6 month emergency fund (which includes your mortgage payment as an expense), than it is really unlikely you will ever be so exposed as to ever need to refinance to a 30 year.

Furthermore, having a 15 year loan with a lower interest rate and an affordable mortgage payment means you are much much more likely to overpay and finish off the laon earlier.

I also think it is a matter of mentality. 30 year loans seem attractive because your buying power is supposedly increased, however I strongly believe that someone with a 30 year loan is more likely to overbuy on a house. It is for this reason that a 15 year loan is better.

I always hear, 'But no one can afford a 15 year loan!'. Besides this being just wrong, you really can't think of houses as an entitlement, even if you have kids or whatever. I say rent as cheaply as possible, save and scrape together a downpayment, and THEN buy a house.

I don't think you can just borrow your way to financial saftety, rather it comes from discipline. This is especially true when times are good, as it is during this time that people overestimate how good they will have it.

Funny how we are using the same justification but come to different conclusions doe. I think this is because we have different ideas on the role of behaviour.

[DavidAlanWin]

Apparently the FDIC claims 97.3% people don't "systematically" pay extra on their mortgages as is (Google it). I can 100% vouch for this concept. I calculated what my 15 year rate would be and fell flat on my face out the gates. I did pay what I could extra, but never made the 15 year rate more than 2 months in a row. Just my experience. 30 year mortgages need to be eliminated and people need to quit buying too much home with too little down.

[jorgeanguiano]

Watching this video makes sense right now with the whole Covid-19 situation. Many people loss their jobs. So now I see where your coming from . For some folks who loss their jobs are wishing they have the 30 year mortgage.

[freddiebutler]

Just remember if you choose to go 30 years and you want to pay it off sooner you must tell the mortgage company the extra money that you send must go towards your principal amount.

[sidvicious]

I used to think the other way was better but you're exactly right in case you run into any financial problems.

[mariefernandeaugustin]

If you live in a low cost real estate area (mid west /down south) where you can still get homes for under 150k the difference in monthly payments isn’t going to break you. So get the 15. But if you’re in a high cost real estate area, the 30 yr does provide the flexibility you speak of.

[coreytaylor]

With 22 years left on my 30 at 6.5% I refinanced to a 15 year at 3.49%. Payment went up $8.

[erichubbard]

I paid off my 30 year loan in 13 years. Lost my job during that time an it did help having the lower payment. If you are really motivated to be debt free you can pay it off earlier than a 15 year loan

[aolsonx]

Who is in a better situation when the worst happens in year 16? I'm wierd, but I put 50% down on a house that was half the price of what the bank said I could "afford". Then I got a 15 year mortgage with a lower rate and paid it off in 6 years. That is the advice that advisors should give. But you would have to be wierd like me to take it. If the worst happens and you cannot afford a payment, you spent to much of someone else's money on something you can't afford. I love your show Justin, but encouraging a 30 year mortgage as a safety net is like encouraging someone to finance an expensive furniture set because you might need that cash next month.

[gebhardt]

Justin is very good. I like his videos a lot. My reason for the 15yr mortgage was to force me to pay it off earlier. 93% of folks with a 30yr don't pay it off early. A 15yr forces you!

[livingaboard]

what a stupid reason to not get a 15 year. "you might get laid off and have to get through tough times." Well then take the difference between the payment on a 15 year and 30 year, AFTER you get a 15 year and add that to your emergency fund. Add an entire year's worth of difference if you want which would probably only be a few thousand dollars. It's all about the emergency fund to cover these type of issues.

[Rangerbn]

I really think this is poor advice from a financial advisor. You should have your dough straight before you buy a house. If you don't have an emergency fund for bad times then you really can't afford a house. Paying extra sounds good but it usually doesn't happen because something always comes up. Purchase a home you can afford with a 15 year mortgage, home expenses should be no more than 25% of take home pay and if you have a proper emergency fund you can weather a storm. I like a lot of the videos but this is one that would keep me from using Jazz Wealth. If any FA gave this advice or recommended taking our equity in your home via home equity loan or HELOC I would not use them. My personal opinion, I weathered the 2008-2009 crisis with owning a private home and two rental homes sitting empty. Had 3 mortgages, worst thing I could have imagined.

[mikalaposley]

Great advice!!! I was just thinking of refinancing to a 15 year mortgage. Thanks

[mp]

I was in the mortgage loan business for 25 years and I agree with you completely. I had several times when peoples situations had changed and they had gotten a 15 year loan and could no longer afford the payment. Times can change and the 30 year loan gives you flexibility. If you are serious about the 15 year term you can always make larger payments on the 30 year loan and shorten your term to 15 or less. Thanks for your sound advice.

[kellienienajadly]

or base your house purchase on what could afford on a tough time on a 15 year mortgage... If you can only afford $1500 if times get tough, buy a house on a 15 year that the payment is $1500. Still pay down quicker of you can

[vengry]

Absolutely agree with you. Just purchased a house 3 months ago and and we did a 30-year loan. The mortgage company we went through told us if we just paid $500 more dollars a month that 30 years loan will turn into a 15 years loan.

[ISILENTNINJAI]

I like you're opinion on this. My plan at the moment is to get my stock portfolio to the point where I receive at least 150 dollars guaranteed on dividends. I have some growth stocks as well but any dividends I plan to use it as extra payment for a house. I plan to give a 40 percent down payment in 5 years from now since I'm 23 and plan on living with my parents for another 3 years and save for that down payment.

[VerdyBerdy]

Im definitely aiming at the 30 year. Yes, over 30 years I would pay more if I went the full 30 years. But if that ends up happening it means I had life events preventing me from paying it early, which would have caused a foreclosure with the 15 year. The safety cushion and peace of mind that you can pay it off faster on your own terms is so important to me

[collinexner]

I’ll stick with my 15 year with a 2.75% fixed rate and pay it off in less than 10 years, and I’ll be okay owing a house out right in my 20s 🤷🏼‍♂️