My wife and I just recently finished refinancing our house on a 15 year mortgage and I've been really shocked at how much better it is for only a slightly increased payment.
With the 30 year mortgage the actual price I'd pay for the house over the term of the loan would have been over twice as much as what I actually bought it for, while with the 15 year it's closer to 20% more. In our previous home with a 30 year mortgage the interest on the payment for the first half of the loan were so high we actually made almost no equity. In year 1 of a 15 year I'm going to put 90% towards the principle that I did over 8 years of the 30 year.
On realizing this as well as the value of having 20% in a house so that you can open an equity line for emergency expenses if need be I've started mentioning it whenever conversations turn to finances.
So I was talking to a guy about this the other day and told him that based on that, my advice to my kids and any new graduates going forward is going to be "If you can't put 20% down and you can't budget the 15 year mortgage, you can't really afford the house. At that point the bank is just letting you rent it from them."
I talk finances with people a lot just because it interests me, but this particular conversation surprised me because this guy got visibly angry, end the conversation and stormed off. What is it about mortgage financing that leaves people so touchy?
With the 30 year mortgage the actual price I'd pay for the house over the term of the loan would have been over twice as much as what I actually bought it for, while with the 15 year it's closer to 20% more. In our previous home with a 30 year mortgage the interest on the payment for the first half of the loan were so high we actually made almost no equity. In year 1 of a 15 year I'm going to put 90% towards the principle that I did over 8 years of the 30 year.
On realizing this as well as the value of having 20% in a house so that you can open an equity line for emergency expenses if need be I've started mentioning it whenever conversations turn to finances.
So I was talking to a guy about this the other day and told him that based on that, my advice to my kids and any new graduates going forward is going to be "If you can't put 20% down and you can't budget the 15 year mortgage, you can't really afford the house. At that point the bank is just letting you rent it from them."
I talk finances with people a lot just because it interests me, but this particular conversation surprised me because this guy got visibly angry, end the conversation and stormed off. What is it about mortgage financing that leaves people so touchy?
