Good morning (or afternoon or evening, depending on when you’re reading this)! Today I decided to write a bit about my love of my 15 year mortgage.
You might remember that I wrote last week about how much I hate my mortgage company, code named “Death Star” for their determination to destroy my personal finances. Well, I might hate Death Star but I love the 15 year mortgage itself. I love it so much I’ve written a poem about it – inspired by Sonnet 43 by Elizabeth Barrett Browning:
How do I love thee? Let me count the ways.
I love thee with thine 2.75 percent interest rate
My soul sings happily, when seeing that low rate
For the ends of the term and mortgage freedom
I love thee with thine 15-year term
Most quietly decreasing, month by month
I love thee freely, as thy helps me obtain financial freedom
I love thee purely, as mine balance decreases
I love thee with the passion of one who once had a 8.375% rate
On mine old condo, and with mine old mortgage.
I love thee with a love I seemed to lose
When I had a 30-year term. I love thee with the low interest,
Principal reduction, 11 more years; and, if I work hard,
I shall but love thee better after payoff.
I Had A 30 Â – And I’m Never Going Back
I used to have a 30 year mortgage, just like a “normal” person. After all, mortgages were something you paid off right before you retired, in your 50’s or 60’s – right? Or maybe never, just like a third of people retiring today. Everyone has a 30 year mortgage. Maybe you pay a little extra on it each month, but you certainly don’t have it paid in your 30’s or 40’s. And that “little extra each month” is optional – life happens and most months that doesn’t occur, am I right?
That might be how most people think, but we’ve established by now that the CMO household is definitively not “like most people.” Having survived a medical crisis that almost killed my husband, job losses, and now with me being the breadwinner and sole income earner, we’re not a typical household. One interesting thing that happens when you survive catastrophic financial events is that you become more conservative. That’s why survivors of the depths of the Great Recession and the Great Depression tend to be more thrifty than others.
From the time I was 20 until I was 33, I had a 30 year mortgage. Well, not A 30 year mortgage – I had four of them.
- Original mortgage on my condo at 8.375%
- Refinanced mortgage on the condo at around 6% (can’t recall the exact rate)
- Original mortgage on my house, purchased in 2006, at around 6.5%
- Refinanced home mortgage at around 5.3%
And in those thirteen years, I felt like I made almost no progress toward getting the mortgage paid off.
Why is that? After all, I followed the “standard” advice and refinanced whenever the rate dropped over a point. That should save me money overall, right?
And sure, it did save me money. BUT every time I refinanced, I re-started the 30 clock-and the higher interest payments – from scratch. With a 30 year mortgage, most of the payments in the first year, five years, even ten years goes to interest. Every month your principal will goes down a tiny amount – maybe a few hundred dollars out of a payment of over a thousand. Â Every month you see the principal portion of your payment tick up, and the interest portion go down, but on a 30 year this process seems slower than a snail.
The Proof Is In The Math
At the time I got my current 15 year mortgage, almost exactly four years ago, I actually almost got another 30. Why is that? Well I was reading all the “standard” advice:
- How you shouldn’t get a 15 year mortgage because it’s not flexible.
- If you have a job loss, you still have to make those higher payments.
- With rates so low, at 3.5%, you can easily arbitrage the mortgage and earn more in the market
- You can always get a 30 and pay it like a 15 if you want to
The initial reason I didn’t get another 30 year is because of the way my mortgage company, who I’ll call Fake Account Inc., dragged their feet doing the refinance. So I went with my local bank instead, and decided to get a 15 year after seeing the payment.
You see, originally I went into the refinance with the idea to lower our monthly payment significantly. With a current mortgage at 5.375% and rates now at 3.5%, my payment would drop by hundreds of dollars per month. But looking at the numbers my bank ran, the 15 year payment was actually just about the same as my current 30 year mortgage. So my monthly payment wouldn’t go down, but I would have the home paid off by 48-at the latest. Under the 30 year, I would be in my early 60’s by the time the mortgage was gone.
So what did the math look like? Feast your eyes on my amazing Excel:
| 15 Year | 30 Year | Comments | |
| Interest Rate | 2.75% | 3.50% | 30 year is 0.75% higher |
| Monthly Payment | $1,730 | $1,145 | 15 year payment is $585 higher per month BUT… |
| Portion of 1st payment to principal | $1,146 | $401 | …the amount of the 15 year mortgage going to principal is $745 more than the 30 year. Heck, it’s more than the entire monthly payment on the 30 year! |
| Portion of 48th payment to principal | $1,279 | $462 | The amount of the 15 year mortgage going to principal is now $817 more than the 30 year. It’s gone up by $133 per month over the years, while the 30 year has only gone up $61 |
| Starting balance | $255k | $255k | Both started with the same balance |
| Current balance (4 years in) | $196k | $234k | After four years, the 15 year mortgage balance is almost $40k lower than the 30 |
| Balance at 15 years | $0.00 | $160k | After 15 years, the 30 year still has a balance of almost $160k. The 15 is paid off |
Of course, the mortgage balance is only half of the math you need to consider – I’ll cover the so-called flexibility of “getting a 30 and paying it like a 15”, and the opportunity cost of a 15, in a later post. But for us, it was a great option. Our payment stayed the same and the mortgage would be gone by the time I was 48 at the latest. Even now, four years later, I don’t regret picking the 15 over the 30.
How About You?
Do you have a mortgage term under 30 years – and if so, what do you think about it? Or do you have biggest mortgage at the longest term you can find, to try and arbitrage the mortgage rate? Perhaps somewhere in between? Let me know in the comments!
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I also love our fifteen year mortgage! The thing about a 15 year mortgage, someone once said, is that you always pay it off in 15 years. Not so with the 30. We’ve had ours for 5 years now and it’s very satisfying to see how much principal we’ve paid down. We almost got a 10 year mortgage, but that would have made our payments so high I wasn’t sure we could swing it and have any cash left. I completely love the sonnet, too! My two favorite things–literature and personal finance–unite! 🙂
I’m the same way with a 10-at first I was worried about the cash flow, and when I did look at them again, the interest rate was higher than my 15! I was lucky to refinance when I did.
It’s crazy what $600 a month will do. My (lofty) dream is to pay cash for a house. The idea of wasting so much money on interest and giving it to the bank makes me crazy… I’m curious to see the math on return on money given inflation and stuff, but I feel like it’s less impactful on a 15 year mortgage than it would be on a 30…
It all depends on what inflation is-the way it’s been so low the last bunch of years, it’s not having much of an impact. Of course that can all change pretty quickly, so who knows if the next 10 years will be anything like the last 10.
We have a 30 year but wish we got a 15! Those principal numbers are insane! Next house we will definitely be getting a 15 (and there will only be a next house if we move locales – how is life down there in CT?).
Thanks for showing the math on a side-by-side! When I pitched a 15 to my husband recently, he was at first focused on the higher payment, but when I pointed out the much, much lower interest over the life of the loan he was sold. Next house, 15-year, no question.
We love CT, although since we were both born & raised here we’re probably biased. 😀 I would go for the 15 year all over again with no hesitation, so I hope you’ll love it too.
I paid my house off when I was 45. It is a good feeling to actually own something. I did the 30 year, then 15, then finally a 10 year when I refinanced. I would make extra payments to speed it up.
If I make all my payments and nothing extra, mine will be paid off when I’m 48. I occasionally look into the 10 year but I’ve not been able to find a better rate than my 15-and now with only 11 years left it probably wouldn’t make sense anyways.
I love our 15-year mortgage. Just passed our 3-year mark on it the other day. Heck, I hate paying interest so much that I even tack on a bit more to knock it out quicker.
I think once it is down to a level where I could just pay it off in a lump sum I will do that. I have a brokerage account where I have been putting my side-hustle money. That would be the future house payoff funding account. 😀
Love that idea-it’s very similar to my mortgage payoff plan. I’m saving a lump sum rather than paying extra each month. This is so I have the extra cash in case of emergency.
Put me down as so happy I locked in the lower required payment of a 30-year. After 4 job losses in 7 years I can confidently say there is no way I would have felt comfortable we could swing both the higher payment plus pay for COBRA, internet, cell phone and car that old job provided. Is was so easy to forget about the value of those employer provided perks when making our emergency fund and thanks to the Great Recession new jobs available paid a lot less than old ones lost.
We’ve had a job loss and needed to pay COBRA while having this 15 year mortgage. Although we always also had to pay our own internet, cell phone, and car bills. But my old 30 year payment was the same as my current 15 year payment thanks to interest rates dropping, so it didn’t really feel like paying extra to me.
I’d agree that when the refi payment on a shorter term is same why not go for it especially for such an awesome rate and the rest of your life is stable. I just caution new buyers to be careful to lock in higher required costs because sometimes multiple things go wrong at the same time and the emergency fund doesn’t stretch as far as you expected.
I have a 30 year rate at 3.279% and refinanced from a 15 year rate to that 30 year rate when they went that low 4 years ago (or so). I agree having a 15 year mortgage is awesome (I, too, am debt averse), but there is opportunity cost paying extra on the mortgage instead of plowing that payment into index funds when rates are so low, in fact, lower than the rate of inflation when you adjust for the impact of the tax deductible interest payments. I have still paid extra from time to time which is not the optimal finance decision, and will be paid off in 14 years-ish from now but I decided it was better to have the lower payment and invest more with such a low rate. I went back and forth about paying the mortgage off completely before I retired, but ultimately decided against it. It was a battle between my finance brain and my debt averse heart and the brain won out this time.
My heart wins this battle, no question there. Given all the issues my family has had, being completely debt free as fast as possible is higher priority than making a potential additional return.
Yeah we just got ours locked into a 15 year term mortgage now. I have refinanced three times now. However, every time we refinanced, we lowered the term to get closer so we didn’t have nearly the jump in payment like you had. I will refinance in a couple more years if possible to cut the term down more possibly if interest rates can go any lower, but, being at 3.375, I’m not thinking I’ll be able to do much better other than just making extra payments to get it over with sooner!
We refinanced to a 15-year mortgage around 5 years ago. We got a great rate at 2.75%. Most people would stick with staying with the full 15-year term, but we are aggressively paying it off early. It’s our last remaining debt and we should have it paid off in about 3 years. Then we are totally debt free 🙂
That’s awesome! You have the same rate I do, isn’t it great? I love how the principal just melts away with the 15 year.
We love our 15 year mortgage as well and basically for the same reasons you mentioned. We started with a 30 – year mortgage, but after 2.5 years and doing the math, we decided to refinance. We also realized that although we’re really good with money, there was no guarantee that we would pay it like a 15 if we didn’t have to. And what sealed the deal for us was how much money we would save by refinancing instead of paying extra.
Ok, a poem about a love affair with a mortgage? THAT’S definitely a first in the blogosphere!
I’m with you. While the “Pay A 30 Like A 15” argument has merit, in reality it’s not as easy to keep on the pace if it’s optional. We just got a 15 year mortgage on our new “Great” cabin. We were 100% debt free (including owning our home), but decided to get a mortgage since rates are so low and it opens up some interesting options for our retirement planning. We’ll likely use the liquidity from our mortgage to defer our pension for 18-24 months, it’ll grow at 6% p.a. while deferred. After we start the pension, we’ll pay off the mortgage. Definitely worthwhile to view a mortgage strategically as part of your financial plan, and a 15 year works best for us.
That is great! Congrats!