I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Since most of the discussion seems to be renting vs owning, perhaps another way to look at it. When you rent and move out, you get absolutely nothing back. When owning, even with a 30 yr mortgage, you are still paying something toward principal. Assuming you did your homework moving in and didn't have a catastrophic economic event like the bubble bursting and you have made enough payments, you should get something back when you move out (sale price - fees - mortgage).
So yes, a lot of the first years of a loan go to interest, but when you rent, it all goes to your landlord. And yes, I'm simplifying a bit.
I started off with a 30 yr. Refinanced to a 20yr and a 15yr as the rates dropped at my last home.
I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Since most of the discussion seems to be renting vs owning, perhaps another way to look at it. When you rent and move out, you get absolutely nothing back. When owning, even with a 30 yr mortgage, you are still paying something toward principal. Assuming you did your homework moving in and didn't have a catastrophic economic event like the bubble bursting and you have made enough payments, you should get something back when you move out (sale price - fees - mortgage).
So yes, a lot of the first years of a loan go to interest, but when you rent, it all goes to your landlord. And yes, I'm simplifying a bit.
I started off with a 30 yr. Refinanced to a 20yr and a 15yr as the rates dropped at my last home.
This is a very good point. H had hardly paid anything down on the principal of his house... maybe something like 5k, he refinanced a couple times to get the rate down. But when we decided to sell the house, he walked away with around $50,000 (after commissions and closing costs) due to the appreciation. If we had been renting, we would have walked away with nothing.
I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Since most of the discussion seems to be renting vs owning, perhaps another way to look at it. When you rent and move out, you get absolutely nothing back. When owning, even with a 30 yr mortgage, you are still paying something toward principal. Assuming you did your homework moving in and didn't have a catastrophic economic event like the bubble bursting and you have made enough payments, you should get something back when you move out (sale price - fees - mortgage).
So yes, a lot of the first years of a loan go to interest, but when you rent, it all goes to your landlord. And yes, I'm simplifying a bit.
I started off with a 30 yr. Refinanced to a 20yr and a 15yr as the rates dropped at my last home.
This is a very good point. H had hardly paid anything down on the principal of his house... maybe something like 5k, he refinanced a couple times to get the rate down. But when we decided to sell the house, he walked away with around $50,000 (after commissions and closing costs) due to the appreciation. If we had been renting, we would have walked away with nothing.
the other argument of renting versus owning is that while you're renting you're likely covering your landlord's mortgage (assuming they don't fully own the property) plus the property taxes, plus money for the perks of being a renter...when you own, you pay principle, interest, and property tax, but you get to write-off interest and property tax on your federal taxes.
I believe we're at 3.4% 30 year mortgage. We put 20% down. We've been paying more towards the principle since almost the beginning, so hopefully we'll be cutting down on that 30 year term.
Our mortgage is a 30yr fixed at 3.75%. We put 5% down so we have PMI. We have been putting extra toward principal for awhile now, and now that our car and entry doors are paid off, and SLs are close to being paid off, we're going to calculate how much extra we need to put toward principal to get to 20% and lose the PMI.
Honestly, sometimes I wonder if we bought too early. We were super inexperienced in financial matters and bought more house than we originally planned on because it was a good deal with everything we needed & wanted. But, housing prices have increased in our area and in the last 2 years there haven't been any houses on the market within our price range that we would actually want. So I know we bought at the right time, but still, we were so inexperienced. Live and learn.
I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Edited because I'm still drinking my coffee, and my grammar sucked.
Me too. I actually expected there to be a bit more who opted for a 10 or 15 year from the start. It looks like that is a very small minority here.
I personally would never take a 30 year mortgage again, but that's just my personal preference and our comfort level. We also believe in not taking out debt at all, so that has a huge deciding factor as well. It may also make a difference in COL too. Our area is LCOL, so a 15 year mortgage for us was still only 15% of our take home pay. But we also purchased a foreclosure that wasn't move in ready either.
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I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Edited because I'm still drinking my coffee, and my grammar sucked.
Me too. I actually expected there to be a bit more who opted for a 10 or 15 year from the start. It looks like that is a very small minority here.
I personally would never take a 30 year mortgage again, but that's just my personal preference and our comfort level. We also believe in not taking out debt at all, so that has a huge deciding factor as well. It may also make a difference in COL too. Our area is LCOL, so a 15 year mortgage for us was still only 15% of our take home pay. But we also purchased a foreclosure that wasn't move in ready either.
I would totally do a 15 year if we lived in a lower cost of living area. Like, in my home town you can buy a pretty nice house for around $200,000. We could have swung a 15 year mortgage on that no problem. The average home price in my current zip code is $432,000. We paid $438,000.
I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Edited because I'm still drinking my coffee, and my grammar sucked.
Me too. I actually expected there to be a bit more who opted for a 10 or 15 year from the start. It looks like that is a very small minority here.
I personally would never take a 30 year mortgage again, but that's just my personal preference and our comfort level. We also believe in not taking out debt at all, so that has a huge deciding factor as well. It may also make a difference in COL too. Our area is LCOL, so a 15 year mortgage for us was still only 15% of our take home pay. But we also purchased a foreclosure that wasn't move in ready either.
I would totally do a 15 year if we lived in a lower cost of living area. Like, in my home town you can buy a pretty nice house for around $200,000. We could have swung a 15 year mortgage on that no problem. The average home price in my current zip code is $432,000. We paid $438,000.
I think a difference also...and other PPs mentioned it...is just because a person takes a 30-year mortgage, doesn't mean they aren't going to pay on it like it is a 15-year. Sure, you might pay slightly more interest on a 30, but then there is always the option to drop it back down to the normal mortgage payment if times get tough.
A 15-year is perhaps a great option for a couple where one or both of them is in a very stable job. But when I bought my house, although I was living with my current H, we weren't married. I bought it with the plan that I would never need his help to pay the mortgage (though he did pay me rent). And, unfortunately, I don't work in a very stable industry. I've been laid off 4 times in the last 10 years. So, while I can easily afford a 15-year mortgage payment and that's what I pay, I went with the 30-year option for the flexibility.
And thank God I did! The last time I was laid off was only four months after I bought my house. And it was my most disastrous layoff. The economy was at its worst and it took me almost one year to find another job (my current one). I had never in my adult life gone more than two months without a job. Every dollar counted, so I was definitely thankful to have a lower mortgage to pay.
I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Edited because I'm still drinking my coffee, and my grammar sucked.
Me too. I actually expected there to be a bit more who opted for a 10 or 15 year from the start. It looks like that is a very small minority here.
I personally would never take a 30 year mortgage again, but that's just my personal preference and our comfort level. We also believe in not taking out debt at all, so that has a huge deciding factor as well. It may also make a difference in COL too. Our area is LCOL, so a 15 year mortgage for us was still only 15% of our take home pay. But we also purchased a foreclosure that wasn't move in ready either.
I would totally do a 15 year if we lived in a lower cost of living area. Like, in my home town you can buy a pretty nice house for around $200,000. We could have swung a 15 year mortgage on that no problem. The average home price in my current zip code is $432,000. We paid $438,000.
I think a difference also...and other PPs mentioned it...is just because a person takes a 30-year mortgage, doesn't mean they aren't going to pay on it like it is a 15-year. Sure, you might pay slightly more interest on a 30, but then there is always the option to drop it back down to the normal mortgage payment if times get tough.
A 15-year is perhaps a great option for a couple where one or both of them is in a very stable job. But when I bought my house, although I was living with my current H, we weren't married. I bought it with the plan that I would never need his help to pay the mortgage (though he did pay me rent). And, unfortunately, I don't work in a very stable industry. I've been laid off 4 times in the last 10 years. So, while I can easily afford a 15-year mortgage payment and that's what I pay, I went with the 30-year option for the flexibility.
And thank God I did! The last time I was laid off was only four months after I bought my house. And it was my most disastrous layoff. The economy was at its worst and it took me almost one year to find another job (my current one). I had never in my adult life gone more than two months without a job. Every dollar counted, so I was definitely thankful to have a lower mortgage to pay.
This is true for us! We are paying it faster than 30 years, but not on track for 15 years. But we're ok with that. We also love to travel - we take 2-4 trips a year and some are not cheap. Our thinking is we never know what's going to happen to us in 10 or 20 or 30+ years - so we want to live life to the fullest today. A 15 year mortgage with limited or no travel would make us sad. Experiences can be worth more to us than saving money. Definitely not MM - but that's my view on this topic.
I'm actually kind of surprised that so many have 30 year mortgages. Am I the only one bothered that for the first ~10 years the payments are going mostly toward interest?
Since most of the discussion seems to be renting vs owning, perhaps another way to look at it. When you rent and move out, you get absolutely nothing back. When owning, even with a 30 yr mortgage, you are still paying something toward principal. Assuming you did your homework moving in and didn't have a catastrophic economic event like the bubble bursting and you have made enough payments, you should get something back when you move out (sale price - fees - mortgage).
So yes, a lot of the first years of a loan go to interest, but when you rent, it all goes to your landlord. And yes, I'm simplifying a bit.
I started off with a 30 yr. Refinanced to a 20yr and a 15yr as the rates dropped at my last home.
This is a very good point. H had hardly paid anything down on the principal of his house... maybe something like 5k, he refinanced a couple times to get the rate down. But when we decided to sell the house, he walked away with around $50,000 (after commissions and closing costs) due to the appreciation. If we had been renting, we would have walked away with nothing.
I walked away with $90k. $30k was principal paid down on the loan, $60k from appreciation.
Just another thought while I'm thinking about it is opportunity cost. If you were to invest the difference between the 30yr note and the 15yr note in the market, over the long term the market tends to average about 8-10% depending on who's numbers you want to use. Most mortgages right now are in the 3-5% range. So you're looking at 3-5% on your money if you invested it. Not many places you can get that right now.
We split the difference. We pay extra on the loan, but we also invest heavily (401k, ira, other investments).
We also have a slightly different view on debt due to looking at it this way. We don't have any student loans or credit card debt (we do use our cards though paid in full every month), but we do use car/house loans where they make sense.
brij2006: Correct me if I am wrong, but didn't you inherit a large amount of money (albeit due to unfortunate circumstances)? So doesn't that play a significant factor into "not taking out any debt?"
I am just genuinely curious that if you hadn't inherited the money if you would feel the same way, especially being on the younger side. Would you have saved up cash to buy your home if you didn't inherit the money? Would you be as debt averse?
Regarding 30 year mortgages: I don't see a problem provided one can afford it. You are investing in a place to live and there are a number of ways to save, even with a 30 year mortgage. We live in a medium-high cost of living area. Getting a 15 year mortgage is definitely within our means (we pay twice our actual mortgage), but we wanted the flexibility of increasing cash flow if necessary. Double our mortgage only takes up 25% of our income. We are still paying off student loans though, so it was a good option to have the flexibility, just in case.
for us the opportunity cost of a 15-year versus 30-year loan was huge. We bought a modest-sized home on a very small lot of land, it was re-appraised by the bank in June for our re-finance. our 3Bed-2Bath 1800sqft Ranch-style home on 0.13acres of land appraised at $250K. Taxes in our zip-code (and surrounding zip-codes) are absurd, we pay $650 a month in property tax. If we had wanted a 15-year mortgage I'm honestly not sure what kind of home we would have been looking at for the monthly payment to fit into our budget.
We aren't planning to stay in this house forever, and for now the lower monthly cost offered by a 30-year loan allows us to invest more in retirement, save more for shorter-term goals (like going on vacation or eventually replacing one of the cars), enjoying some of our money now (date-nights, activities with the dogs like skijoring (always a little equipment cost) or agility training (defintely don't have the space or cash to buy that equipment), and we were able to feel comfortable starting our family sooner).
So while in a "money grows on trees" situation where you can make all the "right" or "smart" choices about money a 15-year mortgage makes complete sense, and we all know that and remind people who ask that a 15-year mortgage is the "smarter" choice. we also all know that there are trade-offs to all situations and in most cases it's better to have the cash available to invest in retirement or to cash-flow emergencies than to have it tied-up in a higher mortgage payment every month to avoid paying more interest over the course of several years.
@bmo88 We were on track to be 100% debt free within 4 years (including our home) when my brother was killed and we received the life insurance. We had refinanced to a 15 year mortgage 2 years ago, and stopped any fun or extras so that we could get rid of the student loans and car payments. Our view on money hasn't changed one bit since receiving the inheritance. We are still anti-debt, and we always wanted to move out to the country with a larger lot and more updated house. We knew that would take $200-250k. Our plans were to save up to pay cash for the next house in 10 years.
If you asked me 1 year ago about all of this (before my brother passed away), I would have given you the same exact response.
Our mindset isn't the "norm" and we know that. We are very anti-debt, and don't believe in debt leveraging. Having a paid for home, cars, and owing nobody anything is something indescribable. We know that if the economy goes to shit, we won't have a lender knocking at our door. Our risk tolerance with borrowing money is zero. Yeah, our money can make more in the market than what we were paying in interest on our mortgage, but to us there's greater risk by owing money on our home than having extra money in the marketplace.
ETA: We also were approved for $150,000 mortgage when we bought our home. We spent $49,000 on a foreclosure that needed a ton of work and was not move in ready. We then took an additional $10k out on the mortgage to get it move in ready, and we each lived with our parents rent free for 9 months while we worked on it. So our mortgage payment was very minimal. We sacrificed a lot of things with our home so that it would be within our comfort level at the time. We weren't making a ton of money either (55k combined). Our mindset on money then (8 years ago) was entirely different too. We did a 30 year mortgage, I had a brand new car, and we took advantage of 0% financing. So yeah, we've been on the other end of the spectrum. That is the norm and we know that, and we are not normal. The fact that my brother left me something, has nothing to do with our mindset about money. Even when we were pro debt-leveraging, we still made the sacrifices and decisions that made the most sense. Yeah, we could have bought a $150k house on a 30 year mortgage that was updated and move in ready, in the MCOL area that's only 20 minutes away. But instead we bought in the LCOL town of 800 and we both commute, so our mortgage payment was very small. And thank God we did, because H lost his job a year after we bought the home and he was on unemployment for 9 months.
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for us the opportunity cost of a 15-year versus 30-year loan was huge. We bought a modest-sized home on a very small lot of land, it was re-appraised by the bank in June for our re-finance. our 3Bed-2Bath 1800sqft Ranch-style home on 0.13acres of land appraised at $250K. Taxes in our zip-code (and surrounding zip-codes) are absurd, we pay $650 a month in property tax. If we had wanted a 15-year mortgage I'm honestly not sure what kind of home we would have been looking at for the monthly payment to fit into our budget.
We aren't planning to stay in this house forever, and for now the lower monthly cost offered by a 30-year loan allows us to invest more in retirement, save more for shorter-term goals (like going on vacation or eventually replacing one of the cars), enjoying some of our money now (date-nights, activities with the dogs like skijoring (always a little equipment cost) or agility training (defintely don't have the space or cash to buy that equipment), and we were able to feel comfortable starting our family sooner).
So while in a "money grows on trees" situation where you can make all the "right" or "smart" choices about money a 15-year mortgage makes complete sense, and we all know that and remind people who ask that a 15-year mortgage is the "smarter" choice. we also all know that there are trade-offs to all situations and in most cases it's better to have the cash available to invest in retirement or to cash-flow emergencies than to have it tied-up in a higher mortgage payment every month to avoid paying more interest over the course of several years.
We're in a somewhat similar boat with taxes. We pay almost $800/month for property tax. There is no way I'd want to be stuck paying the amount of a 15 year loan. Despite our circumstances of moving all the time, I think I'll always prefer having a 30 year mortgage and accelerating payments. We have no other joint consumer debt and I'm not opposed to leveraging debt for better returns elsewhere.
for us the opportunity cost of a 15-year versus 30-year loan was huge. We bought a modest-sized home on a very small lot of land, it was re-appraised by the bank in June for our re-finance. our 3Bed-2Bath 1800sqft Ranch-style home on 0.13acres of land appraised at $250K. Taxes in our zip-code (and surrounding zip-codes) are absurd, we pay $650 a month in property tax. If we had wanted a 15-year mortgage I'm honestly not sure what kind of home we would have been looking at for the monthly payment to fit into our budget.
We aren't planning to stay in this house forever, and for now the lower monthly cost offered by a 30-year loan allows us to invest more in retirement, save more for shorter-term goals (like going on vacation or eventually replacing one of the cars), enjoying some of our money now (date-nights, activities with the dogs like skijoring (always a little equipment cost) or agility training (defintely don't have the space or cash to buy that equipment), and we were able to feel comfortable starting our family sooner).
So while in a "money grows on trees" situation where you can make all the "right" or "smart" choices about money a 15-year mortgage makes complete sense, and we all know that and remind people who ask that a 15-year mortgage is the "smarter" choice. we also all know that there are trade-offs to all situations and in most cases it's better to have the cash available to invest in retirement or to cash-flow emergencies than to have it tied-up in a higher mortgage payment every month to avoid paying more interest over the course of several years.
We're in a somewhat similar boat with taxes. We pay almost $800/month for property tax. There is no way I'd want to be stuck paying the amount of a 15 year loan. Despite our circumstances of moving all the time, I think I'll always prefer having a 30 year mortgage and accelerating payments. We have no other joint consumer debt and I'm not opposed to leveraging debt for better returns elsewhere.
I was more thinking that if we had been prioritizing a 15-year mortgage, we either would have been saving for a down-payment for 5-6 years (and thus renting and not getting any equity for our housing expense and not being able to write off any of it come tax-time)...and/or we'd be living in a trailer so we could afford the monthly payments+property tax.
brij2006: Given your situation that makes sense, but for a lot that isn't an option.
We looked at foreclosures and the cheapest we could find was in the $120-$140k range and it would have needed a lot of money/work. Also, flipping homes is quite popular here, so most get picked up by flippers who pay in cash.
Living in a low COL area definitely allows for those options, but employment can be a challenge. Most either have to commute quite far (which we are not interested in doing) or there aren't many options. Neither of our jobs or salaries would be an option in a LCOL area. We have a pretty good balance between high salaries and a MCOL area.
Should also note, we have no problem with debt leveraging when done responsibly. Having no debt provides great freedom, but leveraging debt can provide great opportunities. Just depends on peoples choices and preferences.
@bmo88 We were on track to be 100% debt free within 4 years (including our home) when my brother was killed and we received the life insurance. We had refinanced to a 15 year mortgage 2 years ago, and stopped any fun or extras so that we could get rid of the student loans and car payments. Our view on money hasn't changed one bit since receiving the inheritance. We are still anti-debt, and we always wanted to move out to the country with a larger lot and more updated house. We knew that would take $200-250k. Our plans were to save up to pay cash for the next house in 10 years.
If you asked me 1 year ago about all of this (before my brother passed away), I would have given you the same exact response.
Our mindset isn't the "norm" and we know that. We are very anti-debt, and don't believe in debt leveraging. Having a paid for home, cars, and owing nobody anything is something indescribable. We know that if the economy goes to shit, we won't have a lender knocking at our door. Our risk tolerance with borrowing money is zero. Yeah, our money can make more in the market than what we were paying in interest on our mortgage, but to us there's greater risk by owing money on our home than having extra money in the marketplace.
ETA: We also were approved for $150,000 mortgage when we bought our home. We spent $49,000 on a foreclosure that needed a ton of work and was not move in ready. We then took an additional $10k out on the mortgage to get it move in ready, and we each lived with our parents rent free for 9 months while we worked on it. So our mortgage payment was very minimal. We sacrificed a lot of things with our home so that it would be within our comfort level at the time. We weren't making a ton of money either (55k combined). Our mindset on money then (8 years ago) was entirely different too. We did a 30 year mortgage, I had a brand new car, and we took advantage of 0% financing. So yeah, we've been on the other end of the spectrum. That is the norm and we know that, and we are not normal. The fact that my brother left me something, has nothing to do with our mindset about money. Even when we were pro debt-leveraging, we still made the sacrifices and decisions that made the most sense. Yeah, we could have bought a $150k house on a 30 year mortgage that was updated and move in ready, in the MCOL area that's only 20 minutes away. But instead we bought in the LCOL town of 800 and we both commute, so our mortgage payment was very small. And thank God we did, because H lost his job a year after we bought the home and he was on unemployment for 9 months.
Ehhh, just because someone have a 30 year mortgage (and a couple of car loans) doesn't mean they'll have lenders knocking if everything falls apart. We have very healthy emergency fund. And we bought within our means. This is also part of the reason that we got a 30 year loan - we could scale back our accelerated payments and pay all our bills on one income. And if god forbid we both lost our jobs, we'd still be good for quite some time. That would be tougher to do if we had a 15 year loan. Our property taxes alone are 5 figures.
Selfishly though, we like nice things. We don't need to keep up with the joneses, but we also didn't want a complete fixer upper. To fix up, it would probably cost as much if not more than buying already updated. We're in our forever home. We're also in our late 30s. I want to live in a house that I'm happy with and love NOW. We want to steamroll our retirement savings. And of course travel the world now. Who knows what our health will be like years from now. I don't want to look back on our life with regret.
I don't think there's any right or wrong answer - every person has different priorities and risk tolerances. We do try and be MM with most things in our life - if we weren't, we wouldn't be able to live the life we currently do.
JoanE2012: I agree. We currently have a 4.5 month emergency fund and are building up for more. If for some reason we were both out of work, we have the reserves to get by. We like that a 30 year allows for flexibility, but also the ability to pay early if we so choose.
@Joan, that is our perspective too. We could have afforded a 15-year mortgage, and we may get one or re-fi into one with our next house, but I really like the flexibility a 30-year gives us. We bought a cosmetic fixer-upper, but it hasn't needed any major gut work done to it. We have still sunk a ton of money into it, and we wouldn't have been able to do that with a 15-year.
Paying more interest in the first few years doesn't bother me one bit. We weren't looking for a quick flip with ours - we anticipate being here around 10 years - and we've been really intentional with the work we've done to add value so that our house is commensurate with the rest of the neighborhood. We also did the major remodeling early enough in our time here that we'll be able to enjoy it ourselves for many years, and that's worth something too. When all is said and done, it's not like we're going to sell the house and get nothing back because the mortgage interest is front-loaded. And yes, we have also been able to travel and ramp up our retirement savings and other investments because we aren't spending that extra money on our mortgage.
We could have saved money by purchasing further out, but my view on that is we would have then just bought ourselves a commute. Spending $50K more to be less than 15 minutes from work (vs 45 min), walking distance to a nice grocery store/gym/movies/restaurants, and 10 minutes to Costco is 1000% worth it for us. We work long hours. Tripling our commute time wasn't even something we discussed because we could afford to buy close in and still make payments on one income if we took a 30-year.
Also? Our jobs are based on billable time. The longer commute would mean 1 hour less per day of billable work. From our standpoint that's 336 hours of work we would each have to make up at some other time during the year. That's over 2 extra months of billable time. From our firm's standpoint, 1 hour less per day works out to be over $70K per year that both of our firms would lose if we don't bill that time. Spending a bit more to be closer in and then taking a 30-year so it was affordable on one income was a no-brainer for us.
Also, my H does quite a bit of foreclosure and tax sale work. He knows the ins and outs of it. From his experience, the state (at least our state) is much less forgiving than mortgage companies when it comes to missed payments. The banks also tend to automate and paper things better than the state. I really don't worry about lenders knocking because we have an e-fund and our jobs are in high demand. I worry much more about the property taxes because our tax assessor's office is incompetent. A few years ago over 1,000 homes in our area were posted for tax sale simply because some employee didn't do their job and failed to enter the info needed to show the taxes had been paid. A couple of partners I work for were on that list.
We have the property tax problem too. Our taxes are higher than our mortgage. We paid $295,000 in 2008 for a 4bdrm, 2.5 baths, 2,500 square foot house. 30-yr mortgage at 4.625 with 50% down. We plan to be here for quite a long time. But our taxes are just under $10,000 a year. We would love a 15 year mortgage, but we can't afford it. Having me stay home with our kids was more important to us so we bought a house we could afford on one salary.
We have the property tax problem too. Our taxes are higher than our mortgage. We paid $295,000 in 2008 for a 4bdrm, 2.5 baths, 2,500 square foot house. 30-yr mortgage at 4.625 with 50% down. We plan to be here for quite a long time. But our taxes are just under $10,000 a year. We would love a 15 year mortgage, but we can't afford it. Having me stay home with our kids was more important to us so we bought a house we could afford on one salary.
This is us exactly! We knew taxes would go up when we bought a new house this past year, but actually getting the first real tax bill was a shocker. It is 9k, plus then the Hoa of $1100! The school district, county and city are all at a higher rate in this new house, plus the house is worth more, so we knew it was coming, it was just a shocker. And I stay at home as well, so we wanted our mortgage to be well below our means just in case something ever happened. We have a 30, but are paying as a 15.
I'm not surprised, because 30-yr terms are way more common than shorter terms, at least in my area. I don't know any of our friends that have a 15-yr. term. As pps said, it really depends on each person's situation. We are not debt-averse at all, and we were fine with having a 30-yr loan. However, when interest rates dropped almost 2% and we refinanced, we took advantage of that to get a 15-year loan simply because we like the idea of paying it off earlier. H is in his late 40s, so it's really important to us to have the house paid off before he wants to retire. With the lower interest rate, we barely noticed the higher payment amount. It' hasn't put us in a bind. This is also thanks to the fact that we bought at the bottom of our price range/budget so we spend way less on our 15-yr. loan than a lot of my friends spend on their 30-yr.
ETA: I think it's great for those of you that can pay your 30-yr terms early; however, in our case, we knew that we would not be disciplined enough to make those extra payments unless we had to by way of the shorter term.
3.5% on a 30 year mortgage. We could have gotten 2.75% on a 15 year mortgage. In hindsight, I wish we'd gotten the 15 year mortgage. We're on track to pay it off in 15 years anyway. But almost a year after putting in our short sale offer, it was approved about 2 days before we left on vacation to Hawaii, and we didn't have much time to finalize all the details on the financing, inspection, and so forth.
Re: What is your mortgage rate?
Since most of the discussion seems to be renting vs owning, perhaps another way to look at it. When you rent and move out, you get absolutely nothing back. When owning, even with a 30 yr mortgage, you are still paying something toward principal. Assuming you did your homework moving in and didn't have a catastrophic economic event like the bubble bursting and you have made enough payments, you should get something back when you move out (sale price - fees - mortgage).
So yes, a lot of the first years of a loan go to interest, but when you rent, it all goes to your landlord. And yes, I'm simplifying a bit.
I started off with a 30 yr. Refinanced to a 20yr and a 15yr as the rates dropped at my last home.
This is a very good point. H had hardly paid anything down on the principal of his house... maybe something like 5k, he refinanced a couple times to get the rate down. But when we decided to sell the house, he walked away with around $50,000 (after commissions and closing costs) due to the appreciation. If we had been renting, we would have walked away with nothing.
Honestly, sometimes I wonder if we bought too early. We were super inexperienced in financial matters and bought more house than we originally planned on because it was a good deal with everything we needed & wanted. But, housing prices have increased in our area and in the last 2 years there haven't been any houses on the market within our price range that we would actually want. So I know we bought at the right time, but still, we were so inexperienced. Live and learn.
TTC since 1/13 DX:PCOS 5/13 (long, anovulatory cycles)
Clomid 50mg 9/13 = BFP! EDD 6/7/14 M/C 5w6d Found 11/4/13
1/14 PCOS / Gluten Free Diet to hopefully regulate my system.
Chemical Pregnancy 03/14
Surprise BFP 6/14, Beta #1: 126 Beta #2: 340 Stick baby, stick! EDD 2/17/15
Riley Elaine born 2/16/15
TTC 2.0 6/15
Chemical Pregnancy 9/15
Chemical Pregnancy 6/16
BFP 9/16 EDD 6/3/17
Beta #1: 145 Beta #2: 376 Beta #3: 2,225 Beta #4: 4,548
www.5yearstonever.blogspot.com
I think a difference also...and other PPs mentioned it...is just because a person takes a 30-year mortgage, doesn't mean they aren't going to pay on it like it is a 15-year. Sure, you might pay slightly more interest on a 30, but then there is always the option to drop it back down to the normal mortgage payment if times get tough.
A 15-year is perhaps a great option for a couple where one or both of them is in a very stable job. But when I bought my house, although I was living with my current H, we weren't married. I bought it with the plan that I would never need his help to pay the mortgage (though he did pay me rent). And, unfortunately, I don't work in a very stable industry. I've been laid off 4 times in the last 10 years. So, while I can easily afford a 15-year mortgage payment and that's what I pay, I went with the 30-year option for the flexibility.
And thank God I did! The last time I was laid off was only four months after I bought my house. And it was my most disastrous layoff. The economy was at its worst and it took me almost one year to find another job (my current one). I had never in my adult life gone more than two months without a job. Every dollar counted, so I was definitely thankful to have a lower mortgage to pay.
We split the difference. We pay extra on the loan, but we also invest heavily (401k, ira, other investments).
We also have a slightly different view on debt due to looking at it this way. We don't have any student loans or credit card debt (we do use our cards though paid in full every month), but we do use car/house loans where they make sense.
So yeah, we've been on the other end of the spectrum. That is the norm and we know that, and we are not normal. The fact that my brother left me something, has nothing to do with our mindset about money. Even when we were pro debt-leveraging, we still made the sacrifices and decisions that made the most sense. Yeah, we could have bought a $150k house on a 30 year mortgage that was updated and move in ready, in the MCOL area that's only 20 minutes away. But instead we bought in the LCOL town of 800 and we both commute, so our mortgage payment was very small. And thank God we did, because H lost his job a year after we bought the home and he was on unemployment for 9 months.
TTC since 1/13 DX:PCOS 5/13 (long, anovulatory cycles)
Clomid 50mg 9/13 = BFP! EDD 6/7/14 M/C 5w6d Found 11/4/13
1/14 PCOS / Gluten Free Diet to hopefully regulate my system.
Chemical Pregnancy 03/14
Surprise BFP 6/14, Beta #1: 126 Beta #2: 340 Stick baby, stick! EDD 2/17/15
Riley Elaine born 2/16/15
TTC 2.0 6/15
Chemical Pregnancy 9/15
Chemical Pregnancy 6/16
BFP 9/16 EDD 6/3/17
Beta #1: 145 Beta #2: 376 Beta #3: 2,225 Beta #4: 4,548
www.5yearstonever.blogspot.com
Living in a low COL area definitely allows for those options, but employment can be a challenge. Most either have to commute quite far (which we are not interested in doing) or there aren't many options. Neither of our jobs or salaries would be an option in a LCOL area. We have a pretty good balance between high salaries and a MCOL area.
I'm not surprised, because 30-yr terms are way more common than shorter terms, at least in my area. I don't know any of our friends that have a 15-yr. term. As pps said, it really depends on each person's situation. We are not debt-averse at all, and we were fine with having a 30-yr loan. However, when interest rates dropped almost 2% and we refinanced, we took advantage of that to get a 15-year loan simply because we like the idea of paying it off earlier. H is in his late 40s, so it's really important to us to have the house paid off before he wants to retire. With the lower interest rate, we barely noticed the higher payment amount. It' hasn't put us in a bind. This is also thanks to the fact that we bought at the bottom of our price range/budget so we spend way less on our 15-yr. loan than a lot of my friends spend on their 30-yr.
ETA: I think it's great for those of you that can pay your 30-yr terms early; however, in our case, we knew that we would not be disciplined enough to make those extra payments unless we had to by way of the shorter term.