What do you like, shorter or longer mortgage and why?

[myself]

Just curious about this, along with whether you are retired already, close to retirement, or years away from retirement.

Our situation, putting 10% towards retirement, 15 year mortgage (just refi'ed primary + secondary into one lower rate) @ 4.625%.
I also admit I'm not the brightest light bulb in the pack, but I don't feel comfortable with having a mortgage when I'm close to (or want to) retire.

 

[Walt34]

We like having no mortgage at all. When I bought a house in late '85 it had a 5% down, 30-year 11.5% mortgage, the only way I could get in the door. As rates fell I refinanced twice for lower rates, both of those were 15-year loans. The first time didn't lower the payment but cut time off. We ended up paying it off in 14 years. Neither one of us likes having that sword hanging over our heads.

And of course we would never consider an ARM or anything else that would change the payments. Fixed-rate only.

 

[bbbamI]

I prefer no mortgage, but that's just me. Retired here.

We just picked the mortgage that we could afford. Sent extra money from time to time and when the rates went down, refinanced when it was to our advantage. Different strokes, I guess.

 

[W2R]

When I bought my house, I knew I wanted to pay off my mortgage as fast as I could.

Still, I got the 30 year fixed rate mortgage because of the flexibility.

The 30-year term meant that if things got tough, or I lost my job, I wouldn't have to come up with such a staggering monthly payment.

The fixed rate nature of the mortgage meant that I wouldn't be caught with a house that I couldn't sell and a ballooning mortgage payment.

I ended up paying it off in four years but I'm still glad I got a 30 year fixed.

 

[myself]

I too would like to have no mortgage. But that's not happening anytime soon.

These are some great stories.

Your's really hits home for me "Want2Retire", because my sister said the same thing. Unfortunately, she let life (well, OK overspending) get in her way, and they finally have a 15 year mortgage (after having paid on mortgages for the previous 15 years.

I'd like to get ours paid off in 11 years or so, but that would require quite a bit more income, and I think (right now anyway), that we'd be better off sticking that money into savings/retirement.

 

[ERD50]

J but I don't feel comfortable with having a mortgage when I'm close to (or want to) retire.

Outside of the emotional aspect of this (which seems like a really big deal for lots of people), I doubt it makes much difference one way or the other. You need to look at BOTH sides of the coin.

If you weren't paying off the mortgage, that money would be going into an account and earning something. So one could just as easily say 'I don't feel comfortable w/o that pile of money when I'm close to (or want to) retire'.

So the true comparison is:

A) Holding a mortgage and holding a pile of liquid money that can be easily drawn from if needed.

versus
B) Mortgage paid off and all that money is tied up in the house, which may or may not be so easily drawn from if needed.

Taxes, your approach to risk and investing, and a few other details play into this, but I doubt it is a big financial matter for most people. Really.

-ERD50

 

[myself]

Outside of the emotional aspect of this (which seems like a really big deal for lots of people), I doubt it makes much difference one way or the other. You need to look at BOTH sides of the coin.

If you weren't paying off the mortgage, that money would be going into an account and earning something. So one could just as easily say 'I don't feel comfortable w/o that pile of money when I'm close to (or want to) retire'.

So the true comparison is:

A) Holding a mortgage and holding a pile of liquid money that can be easily drawn from if needed.

versus
B) Mortgage paid off and all that money is tied up in the house, which may or may not be so easily drawn from if needed.

Taxes, your approach to risk and investing, and a few other details play into this, but I doubt it is a big financial matter for most people. Really.

-ERD50

Quite true.
Right now I live in the highest property tax state in the US. And if we did the difference, we'd still have to offset even more than half for the mortgage alone (assuming an annual ROR of 8.4%).

But, if it's not a big financial matter for most people, then why'd they take out those ARMs/IOs?

As you said, I guess it all depends upon one's risk tolerance.

 

[lucija]

My two cents…If you want to retire, especially if you’re taking about early retirement, you have to have: (1) a paid off place to live + a good chunk of money/pension, or a place with a mortgage + an extra large chunk of money/pension.

Your personal preference may steer you towards approach #1 or #2 – in either case, the most important thing is to “not spend the money”.

In our case… both of us have good, but very unstable jobs. Neither of us will retire with any type of pension or retiree medical bennies. Because of that we chose to carry longer mortgages. Long term, our goal was to minimize risk, simplify things and get rid of the mortgage sooner rather than later.

We held on to several mortgages, but always selected 30 year fixed (stable loan with lower monthly payments). We paid down the mortgage along of the way, but never at the expense of emergency funds or contributions to tax advantaged retirement funds.

I requested the payoff statement a few days ago… I guess we’ll be saying good-bye to the mortgage soon enough. For what is worth, we’re 34 and, hopefully, no more than 15 years away from retiring.

 

[Texas Proud]

When I bought my house, I knew I wanted to pay off my mortgage as fast as I could.

Still, I got the 30 year fixed rate mortgage because of the flexibility.

The 30-year term meant that if things got tough, or I lost my job, I wouldn't have to come up with such a staggering monthly payment.

The fixed rate nature of the mortgage meant that I wouldn't be caught with a house that I couldn't sell and a ballooning mortgage payment.

I ended up paying it off in four years but I'm still glad I got a 30 year fixed.

Another vote for this.... I am looking at moving and getting a 30 year mortgage even though the rate is higher than 15... the flexibility is worth the differnce... and I can always pay it off when I want...

 

[donheff]

While I have a mortgage I prefer long. My extra payments went into investments earmarked to pay off the mortgage in a lump sum. For years they were invested in equities and we periodically refinanced to keep the mortgage rates low. Over the last two years I moved those funds into money markets waiting for DW to fully retire. When she pulls the plug the mortgage is gone so expenses (and withdrawals needed to fund them) will be lower. I don't really know whether what we did was the most cost effective approach. I do know that having no mortgage when salaries end will let us sleep better.

 

[deserat]

Started out with 30 year fixed - re-fi'd to 10 year fixed - still pre-pay mortgage - will probably sell before it is paid off, however, estimated paid off in 7 years - could pay off now with cash around, just want to do other stuff with that.....like invest after tax for RE

 

[playaman]

I am getting a 15-year, fixed mortgage on the retirement home that DW and I are building.

We could pay "cash" but that would mean selling stocks at depressed prices. Maybe I should have sold months ago, but that's a different story. (A year or so ago in a similar thread, I said I was going to pay cash, but then ...)

Having a mortgage doesn't bother me because it frees up other resources.

As may Dad used to say, though: "It's six one way and a half-dozen the other."

 

[jIMOh]

Not retired, probably 18-25 years away. In year 2 of a 30 yr fixed.

I prefer 30 from the standpoint it frees up cash which I can invest in my 401k, and still allow spending on some of the finer things in life.

We have now opened a mutual fund up to make up the other 15 years. We will send an extra payment (or two or three) to this mutual fund each year for the purpose of paying down mortgage (when mutual fund has enough to pay off the balance, we will probably pay down most of mortgage).

 

[bpp3]

Went for a 30-year, at 25 years from retirement, to minimize the required monthly payments, and the interest-rate differential wasn't much. When I make prepayments I can choose to either have the remaining term shortened, or keep the term and reduce the monthly payments. I choose the latter, as insurance against the possibility of having my income drastically reduced for whatever reason. (This also allows me to indulge the urge to prepay the mortgage, even when my spreadsheet screams at me to invest the extra money instead. Improved cashflow is good, right?)

 

[Spanky]

I prefer a 30-year fixed-rate mortgage over a 15-year one since you can always pay extra to expedite the end date.

 

[Retire Soon]

First, congratulations on landing a first mortgage at 4 5/8%. That is really an accomplishment in and of itself. While, DW and I were w*rking, our main priority was to place money in our 401K and 403B. We felt that since this money was tax free that in a sense the government was helping us accumulate money at a faster rate. Plus, we were reducing our taxes immediately, because our taxable income was reduced every payday. Our mortgage happens to be paid off now, but that was only due to the housing bubble. We sold in the summer of 2006 and moved into a house in another state that we had purchased in 2004 and no longer have a mortgage. I'll tell you, it's a very good feeling not to have house payments. As long as we pay $2600 a year in taxes, no one can take our house away from us. As Playaman said, "It's six one way and a half-dozen the other." If it were me, I'd probably place the 10% in a tax deferred account. With temporary help from the government in terms of postponing income taxes, it shouldn't be too hard to exceed 4 5/8% in terms of a real rate of return. If you retire before the 15 years is up on the mortgage, you can always pay the mortgage off with that money. I always felt more self-confident after I began to see substantial amounts of money begin to accumulate in our tax deferred accounts. For me, that was probably more gratifying than paying down the mortgage.

 

[UncleHoney]

Since I haven't had a mortgage for almost 20 years it's hard to say what I would do today. I guess it would be go as short as possible and buy what you can afford and stay within a reasonable budget.

Depending how long you plan on living in the house also might enter into the plans. Thinking about a 30 year mortgage gives me the willies when I figure what I will be paying for after about 20 years that I won't even own anymore. Guaranteed before thirty years is up you will have replaced carpeting, roofing, all the major appliances, furnace and air conditioning, water heater and maybe some plumbing fixtures and maybe the siding. And your still paying off the first ones along with the interest and then buying replacements and maybe paying interest on them. How many people would buy a dishwasher on a 30 year loan?

To me, if you have to go long term initially, refinance after a few years but go for shorter term and more money to match your increased income. Could mean big savings in the end.

 

[twaddle]

(This also allows me to indulge the urge to prepay the mortgage, even when my spreadsheet screams at me to invest the extra money instead. Improved cashflow is good, right?)

How are you defining cash flow?

The bank gives me a chunk of money when I take out a loan.

I invest that money. Each month, I pay the bank interest and I give them some of their principal back.

In the meantime, I've made money by investing the remaining principal. As long as my rate of return > the interest rate on my loan, I have positive cash flow.

At the end of the loan, I'll even have a chunk left over.

I've looked at the most conservative case for my 15-year fixed loan -- investing the mortgage principal in tax-free munis at today's rates and simply leaving it there for 15 years. I would get a tax-break of $39,000 over the term of the loan, I would have positive cash flow each month, and I would still have $10,000 left over after the loan was paid in full.

I might even do better by taking a bit more risk.

 

[bpp3]

How are you defining cash flow?

The bank gives me a chunk of money when I take out a loan.

I invest that money. Each month, I pay the bank interest and I give them some of their principal back.

In the meantime, I've made money by investing the remaining principal. As long as my rate of return > the interest rate on my loan, I have positive cash flow.

At the end of the loan, I'll even have a chunk left over.

I've looked at the most conservative case for my 15-year fixed loan -- investing the mortgage principal in tax-free munis at today's rates and simply leaving it there for 15 years. I would get a tax-break of $39,000 over the term of the loan, I would have positive cash flow each month, and I would still have $10,000 left over after the loan was paid in full.

I might even do better by taking a bit more risk.

So in other words, you can get a (nearly) guaranteed return that is better than your after-tax mortgage rate? Great, then what you say makes sense. I can't do that, unfortunately. If interest rates rise enough for that to become true for me, then I will of course jump at the opportunity.

Meanwhile, the cash flow that I worry about is salary minus expenses, including mortgage payments.

 

[laurinsane]

If you can afford to make the monthly payment, go with the 15 year. You'll save yourself a ton on interest. If not, you can always make extra payments towards your principal with a 30 year fixed. Doing Bi-weekly payments with you mortgage cmpany can actually save you somewhere around 5-8 years on the life of your loan on a 30 year.

 

[myself]

If you can afford to make the monthly payment, go with the 15 year. You'll save yourself a ton on interest. If not, you can always make extra payments towards your principal with a 30 year fixed. Doing Bi-weekly payments with you mortgage cmpany can actually save you somewhere around 5-8 years on the life of your loan on a 30 year.

So can making an extra payment once a year, without having to pay an bi-weekly payment plan fee.

 

[ERD50]

So can making an extra payment once a year, without having to pay an bi-weekly payment plan fee.

I'd say consider the 15 year if it is a significantly lower interest rate.

But be careful with these comments on 'savings' using bi-weekly payments, or extra payments - you need to take into account the opportunity cost of that extra money/time that you invested in the mortgage.

It's not all gravy. It might still be a good idea for you, but it is not all gravy.

-ERD50

 

[Sandy]

When I refinanced 5 years ago, took the 30 year. Many neighbors who were refinancing at the same time took the 15 year option.

The 30 year plan, while a tad higher rate, gives us flexibility. On average, I send in an extra 200-300 each month, greatly shortening the time of the loan, expecially if done at the start. However, recently we hit a tight stretch - and I have not sent that extra payment in 2 of the last 3 months. The flexibility is quite welcome at this point. Even though I expect things will sort out soon, and we will be back on track, one less pressure point is good to have.

BTW, with the extra payments we typically make, we will still end up without a mortage faster than the neighbors who took the 15 year plan and are paying only the required amount.

 

[myself]

I'd say consider the 15 year if it is a significantly lower interest rate.

But be careful with these comments on 'savings' using bi-weekly payments, or extra payments - you need to take into account the opportunity cost of that extra money/time that you invested in the mortgage.

It's not all gravy. It might still be a good idea for you, but it is not all gravy.

-ERD50

When I was referring to extra payments, I was referring to the difference between setting up a bi-weekly payment plan (which typically has associated fees), and merely making an extra payment every year.

Significantly lower interest rates is quite important as you said.

I personally don't think of it as truly "saving" if you pay less interest. To me, saving money is very concretely defined as "depositing funds that would have been spent on something else into an account to earn interest". When I mention "saving interest" on this board, my though is merely interest that you didn't have to pay as opposed to money that you may have put into "savings".

Likewise, "opportunity cost" has it's own risk/reward. One of the reasons that I like FIRECalc! It let's you see what could possibly happen without having to wait until it happens!

 

[Art G]

I had originally gone with the standard 30 year mortgage, but when I refinanced I switched to a 15 year, which I have since paid off. However, I would say the answer depends on your age and where you are in life. If you already have say 10 years left on your mortgage and are in your 70's and could use additional income, then I'd have to consider whether refinancing another 30 year mortgage may not be such a bad idea. Lower your payment quite a bit and let your heirs deal with it in the end, which would probably be the scenario anyway.
Now, on the other hand, I don't know if this has already been discussed, but what are the thoughts out there on a reverse mortgage? Additional income and a guaranteed house for the rest of your life. What are the downsides? Thoughts?