Mortgage Queston: 30 yr vs. 15 yr

[Ruken]

@jacobsta811

Mortgage interest is deducted from your income IF you itemize. Which means you give up the standard deduction. Which means that in practice, the first $X of mortgage interest usually doesn’t really count (where $X depends on how much state tax/charitable contributions/other deductible expenses you have). So for example, if you filed married filing jointly, your standard deduction is $12,200. If you have say $3k in state & local taxes to deduct but don’t have anything else, the first $9,200 in mortgage interest is useless -you would deduct 12,200 anyway if you didn’t have a mortgage at all.

The OP is single, so, so in this case it would make sense to itemize. That said, we’re not talking about a huge impact on the tax bill.

[Cat_Whisperer]

@jacobsta811

Mortgage interest is deducted from your income IF you itemize. Which means you give up the standard deduction. Which means that in practice, the first $X of mortgage interest usually doesn’t really count (where $X depends on how much state tax/charitable contributions/other deductible expenses you have). So for example, if you filed married filing jointly, your standard deduction is $12,200. If you have say $3k in state & local taxes to deduct but don’t have anything else, the first $9,200 in mortgage interest is useless -you would deduct 12,200 anyway if you didn’t have a mortgage at all.

I’m not understanding any of this, so I’m going to chalk it up to very different taxation systems and call it good.

[edwardcoast]

@August_West

Many lenders now offer 20 or 25 year mortgages, as well. That may be worth looking into.

My wife and I faced this same decision. we decided to go with a 30 year mortgage but pay extra each month. We will end up paying the mortgage off in about 17 years, but we’re not on the hook for the extra money if we should happen to have a tight month.

Yes, the interest is a little higher, but we decided the peace of mind id worth it.

This is what we did. Because if you get locked into a 15 year or 10 year, and then some unexpected trouble happens it makes things much worse. The other thing to consider is what is the likelihood of staying in the same house for 30 years too. So we got a 30 year loan and made additional principal payments as if it were a 15 year loan. Because if you lose your job and things get bad, you have no chance of being able to refinance the loan then.

[Musicat]

@edwardcoast

The other thing to consider is what is the likelihood of staying in the same house for 30 years too.

That should NOT be a consideration. No mortgage holder expects you to live there for the life of the loan.

Should you sell, the loan will be paid off (either by you or from the sale proceeds). Rarely, there is a pre-payment penalty, but if so, that usually disappears early in the life of the loan.

[Machine_Elf]

@Musicat

OK, but consider the alternative – missing a payment and getting a black mark on your credit. It all depends on how reliable you feel your revenue source is, and how much backup you have in case of a problem. In effect, you are paying a premium for flexibility, but the premium can be reduced if you can afford it.

A two-income family will have more flexibility and might opt for the 15 year. A single income might not want to take the risk.

Agree with all of this - I just wanted to point out that the flexibility that comes with paying a 30yr mortgage on a 15yr schedule does not come for free; the OP needs to decide whether the flexibility is worth the cost (or conversely, whether the risk of locking into a 15yr mortgage is worth the savings).

[Musicat]

@Machine_Elf

Agree with all of this - I just wanted to point out that the flexibility that comes with paying a 30yr mortgage on a 15yr schedule does not come for free; the OP needs to decide whether the flexibility is worth the cost (or conversely, whether the risk of locking into a 15yr mortgage is worth the savings).

That’s been pointed out already (by you). TNSTAFL.

[amarone]

@Machine_Elf

Agree with all of this - I just wanted to point out that the flexibility that comes with paying a 30yr mortgage on a 15yr schedule does not come for free; the OP needs to decide whether the flexibility is worth the cost (or conversely, whether the risk of locking into a 15yr mortgage is worth the savings).

Indeed. I calculate that for the two options in the OP, it will cost $48,600 more to take the 30-year mortgage and pay it off over 15 years rather than just take the 15-year mortgage.