15 or 30yr Mortgage? Who can help?

[Jimflick]

I am torn between a 15 and 30 year mortgage. I'm putting 20% down. I will get a lower interest rate with a 15 year fixed and pay less interest over time, but a 30 year fixed will offer me a lower monthly payment. I do have money in tax advantage accounts but I can only afford to max my Roth. I'm in a 25% federal bracket.

Am I better off with paying less interest and finishing my mortgage in 15 years? Or taking the 30 year and putting aside more money? Which is mathematically the smarter option?

[disneysteve]

What % of income are you saving for retirement? Your goal should be at least 15%. If you can do that and cover everything else and afford the 15-year loan, go for it. Otherwise, take the 30-year.

[greenskeeper]

We could have afforded a 15-year note when we purchased our 2nd home in 2007. However knowing that my wife would be out of work during pregnancy we went with the 30-year note but paid on it as if it was a 15 until she was not working. It was nice to be able to fall back on the lower payment when needed.

[Jimflick]

What % of income are you saving for retirement? Your goal should be at least 15%. If you can do that and cover everything else and afford the 15-year loan, go for it. Otherwise, take the 30-year.

So 15% savings (which still leaves me room to max a tax advantage account) and 15 year mortgage is the better mathematical move rather than maybe 25% savings in tax advantage accounts with 30 year fixed?
But if I can't save 15% while paying a 15 year mortgage, I should use the 30 year.

Have I understood you correctly?

[youshallliveinoverflow]

Take the 15 year mortgage if you can afford the payments. Just think, in 7 years, you will have only 8 years left to pay the mortgage. This will free up your cash and allow you to invest the mortgage payments elsewhere. Maybe a business or rental property. Good Luck!

[autoxer]

So 15% savings (which still leaves me room to max a tax advantage account) and 15 year mortgage is the better mathematical move rather than maybe 25% savings in tax advantage accounts with 30 year fixed?
But if I can't save 15% while paying a 15 year mortgage, I should use the 30 year.

Have I understood you correctly?

If you have the discipline to invest, then you will probably come out ahead by taking the 30 year mortgage and saving 25% of your income. If you don't have the discipline, then take the 15 year and building wealth becomes more automated.

Spend some time thinking about your investment plan, if you save 25% and put it in CD's or a money market, then would be better off just putting the extra towards the mortgage. If you have a diversified investment plan that you are comfortable with, then you can use the longer mortgage as leverage.

[feh]

If you have the discipline to invest, then you will probably come out ahead by taking the 30 year mortgage and saving 25% of your income. If you don't have the discipline, then take the 15 year and building wealth becomes more automated.

Spend some time thinking about your investment plan, if you save 25% and put it in CD's or a money market, then would be better off just putting the extra towards the mortgage. If you have a diversified investment plan that you are comfortable with, then you can use the longer mortgage as leverage.

+1 to these thoughts.

OP - the answer to your question isn't purely mathematical. The correct answer depends on your behavior and attitude toward finances. Since we don't know what your behavior will be, we can't say which option is better.

[Jimflick]

If you have the discipline to invest, then you will probably come out ahead by taking the 30 year mortgage and saving 25% of your income. If you don't have the discipline, then take the 15 year and building wealth becomes more automated.

Spend some time thinking about your investment plan, if you save 25% and put it in CD's or a money market, then would be better off just putting the extra towards the mortgage. If you have a diversified investment plan that you are comfortable with, then you can use the longer mortgage as leverage.

I am not an expert investor. I only invest in the US Stock market index fund and add some bonds to diversity. I don't use CDs. What would you suggest knowing the way I invest?

[autoxer]

I am not an expert investor. I only invest in the US Stock market index fund and add some bonds to diversity. I don't use CDs. What would you suggest knowing the way I invest?

You don't need to be an expert, but it sounds like you are comfortable owning equities that fluctuate. As long as you don't panic and sell when the market drops, then you will likely come out ahead.

I also just use an index fund for diversity, instead of trying to become an expert on individual stocks.

[Jimflick]

+1 to these thoughts.

OP - the answer to your question isn't purely mathematical. The correct answer depends on your behavior and attitude toward finances. Since we don't know what your behavior will be, we can't say which option is better.

I am a frugal person who tries to invest as much money as I possibly can. I am diligent and stick to my investments annually. Does this help you to answer my original question?