15 year or 30 year mortgage?

**my4littlebuffaloes** · 07-11-2006, 10:25 PM

We are moving to Ohio. One of the main reasons for the move was to get a lower cost of living. Housing is a good bit lower there, but we want some land to go with it. We are looking at houses under $220,000, preferable under $200,000. After selling this house we will be able to put $50,000 down. I really want to get a 15 year mortgage, the savings are tremendous! Dh however wants to get a 30 year and just pay extra each month. Now we could certainly do that, but you know how it goes, something always comes up. I would rather keep a tight budget and have th 15 year mortgage, than hope there is extra each month to pay on the 30 year. What would y'all do? TIA

Jennifer

**waterlover** · 07-12-2006, 08:20 AM

Its a great idea to pay extra on your mortgage. Here is a link to a financial tool where you can input the numbers and see what difference it'll make in getting a 15 or 30 year loan.
http://http://www.crown.org/tools/1530.asp

**PrairieRose** · 07-12-2006, 08:53 AM

I dunno, I'd be inclined to go ahead and go with the 15 yr. mortgage and try to pay a little extra on it as well. The thing that you mentioned with how things always come up, could be a great excuse to not prepay on that 30 yr. mortgage for sure.

Now if you're VERY disciplined you could do it...and pay it off quickly, on the other hand... . Only you can really answer this for sure.

**pammy** · 07-12-2006, 09:10 AM

I see really good arguments for both. With a 15 you will be forced to pay 'x' amount and it will be paid off in 15. With a 30 you have a little wiggle room in case Murphy decides to show up. If you went with the 30 and Murphy never visited and you paid it like a 15 the interest is completely the same.

Just playing around here... Say you find a $200,000, put $50,000 down and financed $150,000 for 15 years. At, say, 6% the payment would be about $1,265 (without insurance and taxes) a month. Total interest paid is $77,841.

The 30 year with the same parameters (6%, $50,000 down, financing $150,000), payment is $899 (without taxes and insurance) and if you didn't pay extra the total interest would be $173,757. However, should you pay that same $1,265 per month (the $899.33 regular payment and $366.46 toward principal monthly to equal $1,265 monthly before taxes and insurance) the loan will pay out in 15 years and total interest paid is $77,841.

The difference monthly should you ever need it is between $1265 and $899 per month (or $366 monthly). Just throwing this out there, but do you have other debt? Is the jobs very stable? Do you have a good sized emergency fund?

Just me, if I had no other debt and a good sized emergency fund of 3-6 months worth of living expenses I would go with the 15 year in a heartbeat. However, I may look at the 30 year until I was out of debt and built up that emergency fund, allowing extra monthly to be applied towards reaching those goals, and then pay on the mortgage like it was a 15 year loan (if not even more to get it paid off even sooner).

**banana** · 07-12-2006, 10:11 AM

I think pammyboat made a great point!

We refinanced to a 15 year and sometimes it is tight. If I would have stayed with my 30 year my payments would have been around $250 less per month, that $250 could come in handy when unexpected hard times come up.

**celina** · 07-12-2006, 10:21 AM

in canada you can split the diff and chose your payment amnt or years....using pammy boats example....1265 vs 899...here you could chose a thousand a month payment and they adjust the yrs accordingly..but here the majority wont let you make extra payment monthly..you can only do so on the anniversary date and only up to a certain amt....our mortg are locked in 3-5 yrs...you can pay it in full at the end or pay a penalty if you pay it off early

**Early Bird** · 07-12-2006, 12:14 PM

Does one or the other have a lower interest rate?

**my4littlebuffaloes** · 07-12-2006, 03:34 PM

Ok, we have no other debt, and dh is a teacher, so the jobs are fairly stable. We have about 2 months in the EF at the moment, but with the move that will go down some. Yes the interest rate is lower on a 15 year and also 6% is hard to come by right now. Rates are almost 7% at the moment and that is depressing, because here in CO we are at 6%.

Another option is to go with a 20 year mortgage - better then a 30 year but not as tight as the 15 year.

Thanks for everyone's replys!

jennifer

**peanut** · 07-12-2006, 07:39 PM

Speaking from experience...we had a 25 year mortgage and paid extra on it to pay it out in 19 years. There were a lot of extra expenses that came with the new house, including things that had to be repaired and fixed. I'm glad we chose the 25 instead of a 15. It gave us leeway to do those repairs.

Still, it was difficult to convince dh we had the extra money to put on the mortgage. I think the answer depends on the personalities involved as much as the money issues. We could have had this hummer paid off sooner if dh had listened to me sooner. Oh well. What's done is done. It's almost gone now.

Jean

**Telephus44** · 07-12-2006, 09:02 PM

DH and I have debate this too, since we're looking to buy our first home next spring. We'll probably go with a 30 year and pay extra, just because we have both experienced job loss in the last few years, and the security of the lower payment if we had to go lower is important to us.

**frugalfarmwife** · 07-13-2006, 10:28 PM

You'll love Ohio

What part of the state are you moving to and how much land are you looking to buy? Right now in our area you could get a nice new house with 5 acres or an older farmhouse with a bit more land. Our old farm sold a few years ago with 25 acres for $180,000 but the land was not developable or it would have gone for MUCH MUCH more. We were able to buy 48 acres with house and several barns in your price range but we got lucky as there was a motocross next door at the time and WE didn't mind it but no one else wanted it, the motocross has since closed down so property values have sky rocketed.

Hope you have an easy move!

And as for the mortgage, I'd go with the 30 year and pay extra but then I'm very diciplined.

kj

**my4littlebuffaloes** · 07-17-2006, 11:52 AM

Dh will be working in Aurora. We are looking at Mantua and Hiram. We want out in the country with 2-3 acres. Not too much, dh isn't interested in farming really. I want a very large garden and some apple trees. And a lot of room for the kids to run!

Jennifer

**chatterweb** · 07-17-2006, 11:41 PM

I would go with a 30 year and fixed put a bit less down so you have a cushion in case of an emergency, and pay extra to the principal. As long as you have no other debt, and are committed to pay off the loan, it should be an easy thing to do.
I would put the EF $$ in an MMA at a high interest rate.

**bamamomto4** · 07-26-2006, 01:36 AM

We just bought a house and I did some research first.First I knew I didnt want to pay PMI (Private mortage Ins) is does nothing for you,just secures the lender their money.I know I'll be paying my mortage so,it was crazy for me to pay it. My mortage guy agreed.
Also,I didnt want to escrow.....I didnt like the idea of paying someone to pay my bills when I could do it myself.Some people like it...one less bill to deal with,but once a yr....I can handle paying my own. All they do is put that money into an account that draws THEM interest then at the end of the yr,they pay your Ins and property taxes...they pocket the interest. I can do the same thing myself except I get to keep that interest it made.

So,we went with a 80/20...no down payment,no pmi,no escrow but the first yr Ins had to be paid during closing.

I also had our closing financed in with the mortage.the reason being closing was going to cost roughly $5000.Did I want to hand over $5000 or keep that in my pocket and finance it in with the mortage which only changed my payment by a few dollars per month.
Also,the no down payment. Since we bought this one before we sold our other,we had $65,000 (our entire savings)to pay down.And if you figure up how much you pay down versus the payments its not a lot. I'd rather keep my $65k and my payment be $100 (or whaterever it was) more per month.That way I know I have $65k in the bank.

I used some of those online calculators to figure this out..(plus asking my mortage guy)..I'm on one now doing this....I'm putting in

$200,000 for the house....$50k down payment....30 yrs.... interest 6.75 cause thats about the norm here.....payment is $972....

Ok now....$200,000.....0 down payment......30 yrs ...6.75%..payment $1297...

Now on 15 yrs......200,000....50,000 down....6.75%......$1327......

Now ....15 yrs....200,000....0 down...6.75%.....$1769

You do save a lot in interest but,if you can afford the $1700 pay $1700 on the $1297...

I guess I was looking at having money in the bank NOW than saving in the interest.Which thats a lot of interest.But they way i am paying my 30 yr mortage,I am only paying 20 yrs. The mortage guy figured up how much extra I had to pay per month to have it paid in 20....

I'd go with the 30 yr no down payment and keep my $50k in the bank somewhere making me money (as I am doing). Our house was $203,500...my 1st is $1055 and 2nd mortage $325.....Remember I did 80/20 so my 2nd mortage is $40,000...I've been paying over $1000 per month with all the extra going towards my prinicpal.My 65K is in the bank making that difference up(and dhs overtime) and I still have the 65K.......My 2nd should be paid off within 4-5 yrs,maybe less....or I'll see that it is anyways

Anyways...that is my system lol...might not suit some but its working for us.
The mortage guy told me about 90% of people do not make down payments these days because of how much it is(20,30,40,50K).Theres to many lenders fighting for your business.He said he just bought his house doing about the same thing I did.

When we sold our other house (it was paid for) I paid off some smaller bills,cc's etc,paid my van off that we just bought new last Aug,put some in savings,helped some family out and spent some on the new house to paint,replace lighting fixtures,replaced the stove,dishwasher and microwave (fridge was here and new) we closed in the entire basement and made 3 bedrooms and a HUGE den...bought the kids new bedding..bought a few splurge items..stuff like that.

I felt safer knowing I had a 'nest egg' if something happened. I couldnt see wipeing out my entire savings for a few hundred extra per month.
I'm the type that will literally panic when my bank acct gets to a certain amount. Had I paid that 65k on the house...I would have had a nervous breakdown knowing I had about $2000 in my EF and dhs savings from work.
Course we did sell our other house quicker than we thought we would but still....

And to...it also has to do with your credit rating.Mine was 785 so I had no problems doing it the way I wanted to. If your score is low,the lender may require you to escrow or pay a certain % down.

Good Luck!

**my4littlebuffaloes** · 07-26-2006, 08:43 PM

Bamamonto4 - that is very interesting how you did it. The $50,000 we will be putting down is equity out of our home, so unless we want to pay taxes on it, it has to go on the house. We have an emergency fund separate from this, so we are comfortable putting that money on the mortgage. I need to look into not having an escrow with this mortgage. We can certainly set aside what we need each month.

Right now we are leaning towards a 30 year and paying extra, I do think we have the discipline to do this. Thanks everyone!

Jennifer