Just Say NO to 30 Year Mortgages

The 30-year mortgage should’ve gone out of style thirty years ago! 

I know this is a very controversial opinion, but these are the topics I promised you we would talk about.  You’re probably thinking, why would she want people to have higher mortgage payments?  “I wouldn’t.”   With almost twenty years in the lending industry the one thing I’ve learned about the American people is that we’ve lost sight of the American Dream.  A dream built on home ownership, not on home mortgageship.  The operative word is OWNERSHIP. 

Let us examine this closely:  Most adults cannot afford to buy their first home until they are in their thirties and more and more that is becoming early forties.  If it takes thirty years to pay off your home, you’re in sixties or even seventies by the time you are free of mortgage debt.  What would life look like if the standard mortgage was only fifteen years?  Now that same thirty year old first time home buyer owns their home by the time they reach forty five.  Imagine at age forty five actually OWNING your home.  What kind of college education could you provide your children if you didn’t have to worry about mortgage payments?  What kind of business could you start if you weren’t working to keep a roof over your head?  A lot of things could be different if you owned your home in fifteen years.  In less than ten years, you would have an enormous amount of equity (real equity) based on principal reduction not price escalation. [see chart below]

I know you’re thinking, how could anyone afford to buy their home in fifteen years, the payments would be twice as high.  This is not true; the difference in a fifteen and thirty year mortgage is not twice the amount.  In addition, most lenders will offer lower rates if you lower your term on your mortgage, why?  Because they will be paid off sooner thus limiting the risk associated with your loan.  Check out this comparison table for a standard $100,000 mortgage at 5%:

	Amount	Payment	Int. Rate	Total of Payments	Balance in 10yrs
15 Year	100,000	790.79	5.00%	142,342	41,905
30 Year	100,000	536.82	5.00%	193,256	81,342
Difference		$253.97		$50,914	$39,437

Don't worry if you have a thirty year mortgage and you don’t want to incur the costs associated with refinancing your term to fifteen years.  You can call your bank and they can amortize your existing loan for reduced term and tell you how much more you would have to pay monthly to reach your goal.

What are the drawbacks to doing a fifteen year mortgage?  I would venture to say there are none that don’t already exists with your standard mortgage.  But here are the concerns that I normally hear from clients:

Q.  What if I lose my job? 

A.  If you lose your job, you’ll be struggling to pay either note.  The difference is, you may have the equity to refinance and borrow money if needed.

Q.  The payment is too high. 

A.  Then you are buying too much house.

Q.  I don’t want to keep this house forever. 

A. Great, you can sell this one sooner, since you will be paying the balance down faster.

No more excuses!  Think outside of the box and go and get your piece of the American Dream.   Make HOME OWNERSHIP a part of your future goals.