Is 30 > 15 or 15 > 30?

December 12, 2011 · 95 comments

Did you know thirty is greater than fifteen? Oh you did? Well, then why do so many people proclaim a 15 year mortgage is better than a 30 year one. I’ll tell you why, because they are wussy faces. Okay, maybe not wussy faces, but they are at minimum narrow-minded.

Girl Ninja and I are planning on buying a house some time between now and never (haha, how’s that for a time frame). Although we don’t know exactly when this will happen, it’s never too early to start planning ahead. Today I thought we’d take a look at how a 30 year mortgage and a 15 year mortgage would impact the Ninja household.

Let’s lay out some numbers real quick so we’re all on the same page…

  • Let’s assume the house we buy is priced at $300,000 and we put 20% down ($60K) effectively making our mortgage $240,000.
  • According to Wells Fargo, today’s 30 yr mortgage rates are 3.875%.
  • Fifteen year rates are listed at 3.250%
  • Private Mortgage Insurance is irrelevant since we would put 20% down in both circumstances.
  • Taxes and Insurance rates are equivalent no matter the loan type since the purchase price of the house remains the same

Okay, now that you know some of the background info, let’s crunch some numbers. Speaking of crunching numbers, did anyone ever play the game “Number Munchers” in computer class back in elementary school? I freakin’ loved that game. It was right up there with “The Oregon Trail.”

If we took the 15 year mortgage plan through Wells Fargo, we’d be looking at a monthly payment of $1,686. Over the life of the loan, we’d have paid $63,552 in interest.

If we took the 30 year loan, our monthly payment would drop to $1,128. That said, we’d end up paying $166,284 in interest over that time frame. YIKES! That’s over $100,000 more than the 15 year loan. Looks like the 15 year loan is the clear cut winner in this hypothetical situation.

If you’re like me, however, you believe liquidity is king. There is something comforting about knowing you have a healthy positive cash flow each month. With a 15 year mortgage I am committing an extra $558 every month to my mortgage. Good, because I’m paying my loan down faster. Bad, because I’m not able to use that cash for other things like investing, savings, or entertainment.

A shorter loan forces you to invest more capital in your house. And as we all have seen, home prices can drop sharply in a short period of time. Sure would suck having to invest all that extra money in a depreciating asset every month. Besides, just because you took out a 30 year mortgage, doesn’t mean you can’t pay it back faster. Remember, I had 20 years to pay back my student loans, but instead I punched them in the face in a little over two. A little discipline goes a loooooong way.

I could throw a whole bunch of other arguments out there as to why a 30 year mortgage isn’t as bad as some of you 15-ers make it out to be (things like the benefit of inflation, or the ability to invest the $558 in an account that will earn me a higher yield than 3.25%) but I wont. If you like 15 year mortgages then you should get a fifteen year mortgage. Just don’t make me feel like I’m being irresponsible for going the 30 year route (if we do).

If you have a mortgage what length is your loan for? If you haven’t bought a house yet, are you going 15 or 30 year loan? Any other points to consider?

p.s. I’m going to Korea :)

1 Kristin

Yay for going to Korea! My buying a house scenario is many years off in the future, so I’m not sure what would make sense for me at that point. If I found somewhere that I wanted to stay forever and ever, I might be more interested in getting the 15 and paying it down quickly. If I thought I’d move in 7-10 years, I might go with the 30-year. It would probably also depend on whether I had a spouse to buy with me, too. However, with the markets the way they are, the idea of buying kind of scares me. I like being mobile. Buying seems like a lot of risk.

Number munchers was my favorite! We’d munch up a storm on the prime numbers :). I liked it better than the Oregon Trail because I’d try to ford a river and all my oxen would die. Or I’d die of dysentery. Or cholera. Or gunshot wounds. Number munchers, you’d just get eaten. Not very painful.

2 cashflowmantra

I have only 30 year mortgages for the simple fact that I have more flexibility. The interest rate is at record lows so I would be using the extra money for other more liquid investments. Remember if you lose your job and can’t pay your mortgage, they will still foreclose even if you have been making extra payments.

3 Jessica

We have a 30 year mortgage. This is on our home back in Nebraska, which we do not live in it’s our rental property. (the military moved us to Japan, and is paying for our house here!) We went with a 30 year loan for the simple fact our payment would be CHEAPER, but we still plan to pay it off in less than 30 years. With our renters in the house, they are actually paying DOUBLE what our monthly mortgage payment is!!! Awesome right? Well, in one word…YES. However with their rent payment we take the extra and split that in 2 we then put half into savings (for the house incase it needs a new washer or something, or something breaks) and then add the other half to the payment. So technically we are making 1.5 payments a month…PLUS any extra I decide to throw at the mortgage.
Oh and yay for you going to Korea!

4 slug | sunkcostsareirrelevant.com

We have a 30 year that I overpay every month by 1/12th of a full payment. I feel far more confident paying a slightly higher interest rate to have the flexibility not to pay extra if I needed the cash elsewhere. However, if rates somehow continue to drop, I will consider the 15 year option again once it aligns close to my 30 year payment.

5 Neo @ NetWorthProtect

Sunkcost – I like your plan! You are paying a little bit of a premium for the option to maintain liquidity and you always have the option to repay extra each month. I think that is the right way to think about it.

6 Kate

I wonder how much the dynamics of this change for Canadians. A 30 year mortgage is nearly unheard of here. Instead, you usually have a 5 year term mortgage with a 25 or 30 year amortization. We (our family we not our country we) pay down our mortgage aggressively because we know mortgage rates could be much higher when we go to renew. Also, that will give us the option of either taking smaller payments on the same term, or keeping the same. That said, I’m not sure how much financial difference it would actually make. Not o mention that our mortgage interest isn’t tax deductible, so there’s no reason to hang on to it for that.

7 Larry

“Not to mention that our mortgage interest isn’t tax deductible, so there’s no reason to hang on to it for that.”

In the US, mortgage interest isn’t specifically deductible unless you can itemize your deductions. All taxpayers here are allowed what’s called a standard deduction, which is the IRS’s estimate of the amounts you pay in state/local taxes, mortgage interest, charitable contributions, etc. (And which in fact may give taxpayers a far higher benefit than they deserve – say if they rent, make no contributions, and live in a tax-free state and can’t deduct their state sales taxes.) But if your deductions exceed the standard deduction threshold, then you can itemize and list your mortgage interest separately. (As always, the US code has various phaseouts and carryovers for itemized deductions, not to mention the alternative minimum tax, which I won’t even go into.)

8 Mo D.

Like my fellow Canuck Kate pointed out, I don’t believe 30 yr. mortagages are the norm in Canada (our’s is 25 yrs, which I think is pretty standard); in fact, CDN Gov’t has recently done away with the 35 yr. and + mortgages (max. is now 30). I have a friend that has a 40 yr. mortgage; another got in under the wire to be approved at the 35 yr. one… WAY TOO LONG in my books!! We have made a couple of lump sum payments against the principle (which brought our amortization down by about 5 years). We are looking to move in 2012, but if we (for whatever reason) decide to stay in our current condo, we could have it the mortgage paid in under 10 years. We flat-out refuse to retire with mortgage debt.

Congrats on your trip to Korea!!

9 alana

First you equate a 15yr mortgage to throwing money at a potentially depreciating asset ,then you also give yourself the option of doing just that by saying that you could always pay off a 30 yr mortgage early, kinda one and the same thing to me. In my opinion, the perceived flexibility a 30 yr mortgage gives, doesn’t chump the overall savings that a lower interest rate 15yr mortgage brings. If you can afford the payments of a 15 yr mortgage while still maintaining your standard of living, why wont you want to reduce total pay back from day one of the loan?

10 Executioner

AMEN!

If you buy a house you can actually afford, then a 15-year mortgage won’t over-extend you. It will just be cheaper, because the interest rate is lower.

Seems like a compelling reason to choose it.

11 Ryo Vie

Wow! Korea it is! Best of luck with that. Can’t wait to hear all about your travels in a far off land.

As for your question, Mrs. Vie and I have a 30 year mortgage, because the monthly payment on a 15 made my wife almost pass out. It was hard for me to swallow as well. Sometimes you have to live month to month.

12 Happy Homeowner

Ahh…so much to comment on in this post!

First: I LOOOOOOOOOOOVE Number Munchers! I used to beg my teacher to let me stay late at school just to play the game, then come home & run down the street to my friend’s house and play it there (yep, a bit obsessed!)

Second, sweet move deciding to go to Korea! I’m jealous and looking forward to reading all about it.

Third, I went with the 30-year mortgage for exactly the reasons you mentioned. I have already shaved years off the loan by paying extra, but I know that if an emergency arose, I could easily scale back the extra payments and use that liquidity to help get through the rough patch. That piece of mind is worth much more to me (especially knowing that I won’t pay even half the amount of interest of the standard 30-year schedule).

13 joanne

In Canada – like mentioned above – the most common is 25 year amoritization with renewal periods. Do I understand correctly that when you sign up for a 15 year mortgage (or 30 year) you are set with that interest rate for the duration? I am currently in a 20 year with a 5-yr term which means I get to change lenders and/or interest rates at the end of my 5yr term (with no penalty). Currently – I am paying weekly accerelated payments (more than the required payment) which has taken my 20 year mortgage down to less than 13 years :) And when the renewal is done your payment is calculated based on the remaining amount owing and the amoritization that is remaining ie; When I renew they will calculate the payment based on the remaining $ owed and a 15 year ammorization for likely another 5 year term – and I will recalculate it based on 10ish years and adjust my weekly payments accordingly :). Do Americans have the option to change your payment frequency from monthly to say weekly/bi-weekly to allow for accerelated paydown?

14 joanne

Oh and that 20 years has now become less than 13 years in less than 2 years just by paying accerelated (larger than required) weekly payments :)

15 Larry

http://ostermiller.org/calc/mortgage.html

I’ll let you play with the numbers. I absolutely agree that taking a 30-year note is preferable, and the calculator linked to above shows you the effect of different inflation rates as well as making accelerated payments. Pay enough additional when you can, and the difference between 15 and 30 becomes less significant.

But I dispute this statement: “And as we all have seen, home prices can drop sharply in a short period of time. Sure would suck having to invest all that extra money in a depreciating asset every month.” A house is not necessarily a depreciating asset. Quite the contrary depending on market conditions. We’re going through a period of lower house prices now, but that’s no guarantee for the future. And if you plan to stay in the house indefinitely, why concern yourself with depreciation?

16 Midwest

We have a 15, refi’d from a 30 yr. We made it a point to purchase a home we could afford, so the higher payments are easy to manage even on one income. (wife is in grad school) lower interest rate, shorter term, less output of total cash to achieve true home ownership. We also make it a point to shorten the loan by paying extra. Seems like the best of both worlds to me.

Check out an amortization chart on the interest paid in month one on a 30yr vs a 15 yr.

17 Evan

There was nothing up there with Oregon trail…except maybe Where in the World is Carmen Sandiego. Notwithstanding your mistake…Check out on your fav mortgage calc taking the 30 but paying the 15…you’d be shocked how little extra interest you pay for the liquidity. I am with you!

18 asgreen

I have a 30 year mortgage and I’m trying to refinance into another 30 year. Ideally, I would like to sell my property, but the current market has me holding on to it for a few more years. Since I’m not living there my goal is to reduce the cost of my loan as much as possible so it doesn’t effect my other goals. Since it is not a long term purchase I’m fine paying less until we deem it is time to sell. Fingers crossed we can refinance!

19 AMD @ A Mom's Dime

I’m in Canada and went with a 30 year mortgage. We like the flexibility of having more cash flow in the month, although we also have a good mortgage plan to pay it off in ten years through extra pre-payments. Extra payments go a long way, especially in year 1. After our first year with this mortgage, according to PC financial our mortgage period went down from 30 to 20. How’s that for punching 9 extra years (plus the one of normal payments) of payments off in a year!

20 Vanessa

Yay for Korea! Also, I loooooved Number Munchers…

21 Jennifer

I agree with your reasoning and have done the same. I have a 30 year mortgage but my plan is to pay it off in 8 years (4 down, 4 to go). Assuming nothing crazy happens where I need that cash flow.

Thankfully in my area, home values have remained quite steady – we never experienced the big gains, so I’m assuming that’s why we also didn’t experience the big drop in values either.

22 SWR

We plan on being renters forever so I don’t have anything to add on to your post other than…

YAY KOREA!! I’m really happy for you and I hope that you have an awesome time.

23 Dave

Don’t underestimated the emotional value of knowing that your home is paid off, especially when you have kids. Having the house paid off means keeping a roof over their head becomes much less of a concern. It’s not always about dollars and cents.

And go with the 30-year mortgage. You can then turn it into whatever length mortgage you want by paying a little extra towards the principle each month.

24 Norman

It also depends on a person’s age and place in life. Due to life situations, if someone finds themselves buying a house when they are older, I would recommend a 15 year mortgage in order to have it paid off by the time they retire. Thats what I did, and I’m glad I did. Now, in my mid-fifties, I can take those dollars that I’m not paying on a house payment anymore and sock it away for retirement. Yes, I could have done both (a 30 year mortgage and more retirement investing) but I wanted that security of having a paid-off house long before I retire. For a younger person, I would definitely recommend a 30 year mortgage, hands-down.

25 Sarah

Just bought a house in So Cal with a 15 year. Yes, cash flow is good, but being in our early 30’s, we’re not counting on social security to supplement whatever our 401K’s end up looking like when we retire. We want to own our home, it’s one of the ways we can ensure that we can have some stability when we want to quit working. So essentially, we are not looking at the house as an asset, just a place to live. Plus, think of the cash flow we’ll have at 47 years old with no house payment! Long European vacations, paying cash for kids’ college, etc.

26 StackingCash

15 > 30 hands down! The only reason for getting a 30 is the same reason people get 7 year loans on cars, buying more than you can truly afford. Sure it’s nice to live in a 300k house, but if you cannot do a 15 year loan you should not buy it. Buy a 150k house instead to afford that 15 year mortgage. Then again, I do like enjoying a nicer lifestyle so maybe I would do a 30 year to buy a nice house…

27 Ninja

If you can afford a $1,600/month payment for 15 years straight, you really think you’d struggle to make an $1,100 payment for 30? Doesn’t quite make sense to me. Especially when you factor in the impact of inflation.

I think you are just saying don’t buy too much house, which I agree with. But if you can afford a 15 year mortgage on a house, then you can obviously afford the 30 year option on that same property.

28 Larry

Agree with Ninja and disagree with SC. Lenders use formulas to determine how much of a mortgage you’re approved for. And you can always accelerate your mortgage to pay down more principal. Without giving actual numbers, the purchase price for my apartment was below $100K and my down payment more than 25%. I still took a 30-year loan, so that I would not over-extend my cash flow and benefit from inflation. Today after 22 years, while I know any number of people busting a gut to make their payments on more house than they need, I am comfortably paying a few hundred a month on my mortgage and most of it is now principal.

29 StackingCash

Listening to the lenders is what caused this whole mess, those greedy bastards were more concerned about lending out as much money as possible to make a profit from origination fees and the promise of future income from borrowers paying interest to them. You did it right Larry, you bought an affordable apartment which allowed you to have better cash flow. Speaking of cash flow, how nice would it be to have your home paid off in 15 years compared to 30?

30 StackingCash

You read me wrong or I wrote it wrong. I’m very hardcore against debt of any kind. Of course a 30 year mortgage is more affordable than a 15 year. I feel like you should do your best to buy a home with a 30 year but still afford to pay it off in 15 years or even less. I thought you hate paying interest which is why you paid off your student debt early. I feel mortgage debt is just as bad as student debt. Also, for liquidity, a HELOC would come in handy and your credit cards too.

31 Larry

Your comment on lenders introduces a (valid) complication I wasn’t considering. I was thinking instead of those good ol’ days when lenders did credit checks and asked for bank statements and W2s. Which is what happened when I applied.

Of course it would have been nice to pay the loan off more quickly. But my situation was perhaps a bit different – I took an adjustable mortgage (why? because it had to do with the number of units sold in my complex), but given the low interest rates in the past ten years, I was actually paying less interest as the loan went on. (Today my nominal payment, never mind adjusted for inflation, is almost half what I was paying in the first years of the loan.)

As for debt, I regard it as a necessary evil in cases where you want to acquire an worthwhile asset but can’t pay cash in full. And so you pay a higher purchase price in order to take more time to pay. I’m not talking about revolving charge card debt, which I loathe, but debt incurred in acquiring something expensive of value like a car, a house, an education, maybe a fine musical instrument like a grand piano but very little else that I can think of. It’s a trade-off. And I don’t let it bother me. Otherwise I have always saved up to pay cash for moderately costly things like appliances, computers, furniture, vacations, good clothing, and the like.

32 Jenny

Woo for Korea!

I refi’d from a 30-year to 20-year mortgage last year (6.55% to 3.75%), which only dropped my payments $20, but cut 6 years off the loan and is saving me huge $$ in interest. I can still pay the same amount I was paying with the 30-year, but now that $$ is going straight to principal. I’d much rather have the stupid house paid off quicker and have that $$ for savings, then continue to pay the same amount and not have the savings. I looked at the 15-year loan, but the payments would have been more per month than what I was already paying. I like the small flexibility I got with my 20-year loan.

33 krantcents

When I refinanced 8 years ago, I took a 15 year mortgage. I wanted to make sure I would pay off my mortgage by the I retire.

34 Jenna, Adaptu Community Manager

No mortgages for me, yet. I think I’ll figure out what I want to do when the time comes.

35 Matt, Tao of Unfear

Hey Ninja! I’m planning on buying a house in the same time frame as you! Haha.

Personally, I’m enamored with the idea of saving enough money to pay cash for a house, buuuut unless I suddenly become rich and famous, I doubt that will actually happen. One still has to factor in inflation, and saving up money for thirty years just so I can say I paid cash for a house isn’t very practical. Yes, I would save a ton of money on interest, but I also want to invest in the creation of a forest garden (and thus, my future food security), so I’d like to buy a house sooner rather than later.

36 Claire

We took a 30yr and immediately dropped years off just by choosing to pay bi-weekly. We’ve since dropped more years off by storing our savings in a mortgage offset account. Not sure what the US equivalent is called but here in Australia we have optional savings accounts that are linked to our mortgage and whatever amount is in that account offsets your mortgage interest. Your savings are effectively returning an annual rate equal to your mortgage interest rate. In our case that’s 7.18% which is better than any high interest savings account and our share portfolio are returning right now, but the best part is the money remains 100% liquid at all times.

37 Jason Cabler (@DrCabler)

I would always opt for the shortest mortgage possible. You save more money over the long term even if the payment is higher. Having your home paid off at a younger age has its advantages.

Even if your house depreciates in value the shorter mortgage is the better deal and will allow you to have more options open to you if you need to sell. Just read a great article illustrating that at Christian PF. You can read it here: http://christianpf.com/how-would-dave-ramsey%E2%80%99s-home-buying-advice-work-when-the-bubble-bursts/

38 Derek

I’m going to purchase a home soon and have been considering this myself. What I’ve elected to do is purchase a 30 year loan and pay 15 year sized payments. This will pay the home off in 15 years 11 months if I follow it religiously. If my ride becomes bumpy along the way, I can make the 30 year sized payments.

If everything goes as planned, I’ll effectively be paying 12k more in interest than I would in a 15 year loan. I’ll gladly pay for that flexibility.

39 C

I’m never getting a mortgage. I have tons of student loans and I want those gone, but once they are, I never want debt again. If I can’t afford it, from now on, I won’t buy it. No point.

40 C

And explain to me why you condemn all over forms of debt but a mortgage is okay? Also, if something major happens, you’ll lose your house and have nowhere to live, whereas if you were paying a reasonable rent every month, or if you owned a house outright, you’d still have a place to live. You’re cool with that?

With all the money you have in your savings, you could probably find a way to buy a house that wouldn’t require a mortgage. If I had the money you do, I’d buy a foreclosed house and not have a mortgage.

41 C

over=other.

42 Ninja
43 C

No way in hell would I spend all that time working my way out of a huge mountain of student loan debt only to take on a debt five times that which I would NEVER be able to pay off. Not worth it imo.

What is so magical about a mortgage that puts it above other forms of debt?

44 Evan

There is an appreciating asset behind it. Real estate goes up usually (except in bubble times – 05 to 07 / 88 to 90) with inflation, but you are still paying the same amount. So if you bought a house in the 80’s (coming up on 30 years and lets say you didn’t refi) you’d still be paying that same amount 100K over 30 yr amortization table even though your salary has increased over the 3 decades.

Besides I’d love to see how many people in America actually buy a home without one, my guess? in the single digits. However, if home ownership, is not a goal of yours then the conversation is moot.

45 C

I just don’t see what’s so great about owning a home if it puts you six figures in debt. Just the debt I have now is oppressive; can’t even imagine multiplying that by five or even two.

46 Ninja

C- that’s because you make $8,000 a year. I wouldn’t recommend you purchasing a home either. But if you can comfortably afford a mortgage ($1,200/month is only 12% of our gross pay) I don’t see the big deal.

47 C

Even if I made more, I still wouldn’t go into debt again.

48 Ninja

Really? You have to be kidding right? Why is a mortgage better than other types of debt?…

1) Tax deduction. Mortgage interest is tax deductible. There’s no deduction for having a crap load of credit card debt.

2) A house, over an extended period of time, typically appreciates in value. It’s an investment. Your credit card purchases, student loan debt, and car loans don’t appreciate… EVER.

3) If I am paying $1,200/month in rent (which I am) or could pay $1,200 for a mortgage, why wouldn’t I? 30 years later I have a paid for house and no living obligations. If you rent for 30 years, you have NOTHING.

4) Interest rates on mortgages are insanely low right now 3.25%. My student loan debt was 7%, credit cards are usually between 12%-20%, and car loans hover around 5%.

Do you really want to try and make the argument that a mortgage is no better than other types of debts?

49 C

Yes, I do.

My student loans are tax deductible too, and they still suck.

A house appreciating in value is not enough reason for me to want to get in that much debt. And sometimes homes DECREASE in value. Are you banking on that?

If you rent for 30 years, you get the satisfaction of knowing you didn’t spend 30 years in debt with…a negative net worth (ooh!). 30 years in debt? I wouldn’t have expected that from you. I wouldn’t call a place to live for 30 years with no debt and the ability to walk away anytime without severe repercussions nothing. Also, homeowners have to maintain their houses and that gets costly, a lot of them end up dipping into their home equity to pay for it. Renters don’t have to worry about that. I should also mention that if I had 100k saved up, I’d buy a cheaper house. If a house was such an important investment, I would be okay with using most of my savings to pay for it. I mean if it’s so important that you want to get into debt for it, maybe it’s important enough for you to use your savings. You’re going to lose 60,000 of the money you’ve saved AND be in debt. That’s gotta suck.

Even if mortgages had zero interest, being in debt for 30 or 15 years in a ridiculous amount is unappealing, oh so unappealing. Just being in student loan debt has sucked, I can’t imagine if I was in debt for a mortgage. But…I can’t escape my student loans, and with a mortgage you can just walk away, so…hmm.

You can think I’m full of it–and you probably do–but there are different ways of looking at things. I don’t think being a large amount in debt is ever good and I don’t think a mortgage, student loans, a car, OR anything else is “good debt.”

You worked so hard to get out of a financial mess. Why would you put yourself in one again? As much as you’ve been lucky (know you love that word) what if your luck ran out and you lost your job? Would make it tough to pay that mortgage.

50 Evan

C,

I can understand that home ownership isn’t your goal, but your arguments make you seem kind of crazy.

“Even if mortgages had zero interest, being in debt for 30 or 15 years in a ridiculous amount is unappealing”
– You can’t be serious? What is it about debt that you hate so much? Does it make you feel “icky” inside? Is it your God telling you debt is bad? I mean this statement literally makes you sound naive.

51 C

You can think I’m crazy. That’s fine.

I guess I don’t understand why home ownership is such a great goal, and why, if it’s your goal, you wouldn’t save up actual money to pay for it rather than taking out a loan.

What I hate about debt is that fact that it takes away money that could be used for something else, something that could make your life better.

You may think I’m naive, but I’m also 44k in the hole with student loans and got a crash course in this after I graduated. I’ve wised up quite a lot.

I guess it does feel pretty icky to know that instead of a vacation or a better car, my earnings will all have to go to student loans.

I am not religious, so no.

52 Evan

And I am 90K from law school – would I do it again? Hell yeah. It is the reason I have the job I do today. Your 44K was an awesome use of money if you get a job that pays a higher amount because it….

53 C

If the job is so good, why isn’t the debt gone?

54 Evan

I wrote something mean but then just deleted it. I am going to let this convo go because you clearly are pissed off at someone for telling you to go to college and taking on student debt.

You are a lost soul and not worth arguing with if you think you should have a BMW (44Kish) instead of a degree from a 4 year college. Wow.

55 C

When did I say I should have a BMW?

I like my degree, I’m glad I have it, I just wish I hadn’t gone so far into debt to get it. Nobody told me to go into debt; I got myself into this mess.

56 C

I just want to apologize for what I said. I didn’t know you had a child. Children are incredibly expensive, and I don’t plan on having any myself, but I can imagine it eats away at even the most well planned budget. I also don’t doubt you’re saving up so your child won’t have to go through what you did.

So, that said, I apologize for my comment. It was rude and uncalled for.

57 krystalatwork

Hi C – excuse me for butting into this conversation, but I think you’re being extremely narrow-minded. I am a new home owner ($259k townhouse in Vancouver – one of the most expensive cities in the world), and even though I am in debt because of my mortgage, I think buying a home was one of the best decisions of my life. There are so many reasons why people choose to buy a home, but listing them out for you probably wouldn’t make a difference.

Also, for what it’s worth, I took out a 30 year mortgage as a single home owner. And with my debt repayment plan, my mortgage should be paid off in half that time.

Personal finance is different for everyone. For example, I would NEVER spend $44k on education. To me, that seems ridiculous. But there are plenty of people (including yourself) who did. And that’s your choice. I’m not going to argue with you over whether your education has been worth it. Maybe you know the answer already.

You indicated that you didn’t realize what you were getting yourself into with your student loan debt. That’s too bad. Now you know that you should have done your research before taking on debt. But I’m confident that if Ninja did decide to become a home owner, it is because he has done all of his research, and knows that it’s the best decision for himself and his family.

Why argue so strongly with someone about a personal choice that he may want to make?

58 C

I did not intend to spend 44k on my education. I didn’t understand the loans I was taking out and ended up with debt as a result. Had someone (a school counselor, someone from my family, a finance expert) explained to me what I was getting into, I would have made different choices. And, I was in my late teens/early 20s.

I would never consciously and with full awareness go 44k in debt for an education. I agree with you in that sense.

I don’t get what the point is of rubbing my mistake in my face. That’s just rude.

Nothing else to say. Bye.

59 C

Also, people who get grants and scholarships, or their parents pay, are paying 44k, they’re just not on the hook for it because it’s someone else’s money. 44k divided by 4 is 11k, which is a reasonable amount of money for state school tuition and fees.

Just because I was unfortunate to end up with loans financing that amount doesn’t mean 44k is ridiculous to pay for school. It’s only ridiculous to OWE that for school.

60 Ninja

If I lost my job paying rent would be just as difficult. I get it, you hate debt and don’t want it ever again. I don’t share a similar sentiment. We could argue forever, but instead we should just agree to disagree. Besides with my “luck” buying a house will probably turn out to be the best decision I ever made.

61 Evan

Ninja,

I actually just did some calcs maybe you can use – http://www.myjourneytomillions.com/articles/calculating-possible-future-housing-expenses/

62 C

I kinda thought you hated debt too, given the name of your blog. So I guess it’s punch everything but mortgage in the face.

What you seem to be saying is that you don’t care to take the time to come up with well-reasoned responses to my statements.

Have you even thought about why you want a house? Or is it just because that’s what people do?

63 Ninja

You arguments are not well reasoned and don’t merit a thoughtful response.

“If you rent for 30 years, you get the satisfaction of knowing you didn’t spend 30 years in debt with…a negative net worth (ooh!).” You know how net worth is calculated right? Assets minus debts. If I buy a $300,000 house, my net worth doesn’t suddenly drop $300,000. If you don’t understand this basic principle, I’m afraid I can’t help you.

“sometimes homes DECREASE in value. Are you banking on that?” Of course homes decrease in value sometimes. But over a long time frame, they almost always appreciate. That would be like saying, you shouldn’t invest in the stock market or contribute to retirement, because your investments could go down in value. You can chose to ignore the fact that over a 30 year time frame houses are all but guaranteed to appreciate, but that would be ignorant.

You clearly have a warped perception of reality and struggle to understand the benefits of home ownership. Even Dave Ramsey, the most anti-debt person I’ve come across, agrees that mortgages (when taken out responsibly) are worth it.

64 C

That’s your answer to everything you don’t want to answer. “This doesn’t merit a response.”

How is that an answer?

Okay, fine, I’m not a financial genius like you are. I wasn’t aware that a 300k debt was an asset. I thought it was, you know, a debt. But apparently I’m wrong? If other debts decrease net worth, I’m not sure why the hell a mortgage wouldn’t. But whatever.

I’ve already been told the “benefits” of home ownership. I still don’t think it’s worth going into hundreds of thousands of dollars of debt.

I see reality just fine, thank you.

And Dave Ramsey is pretty smart but he’s not always right.

Oh, and he actually said that 30 year mortgages should be avoided. Hmm.

65 Evan

C,

The reason not be argumentative which you are starting to get is because there is an asset on the other side of the balance sheet.

If I have a 300K in the bank – my net worth is 300K
If I have a 240K in the bank, 240K in Mortgage and a 300K house my net worth is still 300K. In this example I put 60K down (which is 20%)
If I have 300K in a house but 0 in a bank – My net worth is STILL 300K.

66 Ninja

Let me spell it out for you.
$300,000 mortgage = $300,000 debt.
$300,000 house = $300,000 asset.
$300,000 – $300,000 = 0 (notice that number is not negative).

Weird how that works huh?

You seem to ignore the fact that a 30 year mortgage can be paid off in one year, ten years, or 30. Just because it’s a 30 year loan doesn’t mean you have to take 30 years to pay it off. I had 20 years to pay off my student loan and knocked em out in under three. Maybe I’ll do the same with my house payment, maybe not.

You keep doing what you’re doing cause it’s clearly working out for you, and I’ll keep doing what I’m doing.

67 C

What if the house ISN’T worth 300k?

68 Ninja

I love how you have never specifically addressed the FACT that home prices trend UP over a 10+ year time frame. Can’t blame ya for avoiding it though, since you can’t really refute it.

69 C

P.S. not everyone sees a house as 100% an asset, fyi. You choose to see it that way because you want to take out a mortgage, but if you owe money on something, it has to be a liability in some sense because the bank owns it, not you.

70 C

Also, way to take potshots at my financial mess. It’s clear that if someone in a financial mess comes here and shares their story, you’ll just insult them.

71 C

I forgot to mention property taxes AND the fact that it’s much easier to just give a landlord 30 days notice and move somewhere cheaper (because you’re so good at saving) than to deal with the consequences of foreclosure.

72 Evan

C,

What if its worth 240K? Then you are right you took a loss, what if its worth 4mil? Then you have a gain. It is a calculated risk. Do you have any money in the stock market?

73 Evan

C,

I’d be honored if you read one of my posts, Ninja said it was ok to post. It is titled “It is about time to Grow the F*ck up”

http://www.myjourneytomillions.com/articles/probably-about-time-grow-fuck-up/

I don’t pretend to know anything about you, but it might push you in the right direction.

74 C

I read it and am unimpressed. Thanks anyway.

75 Evan

Thank you for reading it, hopefully, one day you’ll find yourself in a better place financially than you seem to be today.

76 C

Um…thanks. At least you wish me that.

77 Ninja

Still waiting to hear your response to my comment above…

78 C

Sometimes home values trend up, sometimes they don’t. You’re taking a gamble.

Btw, I know you don’t have to pay off a 30 year loan in 30 years. And you may think I’m stupid about finances, but I know quite a bit, most of which I learned AFTER borrowing all the money I did. I know not to go to grad school and take more debt, not to get a car loan, not to get a mortgage.

I know a lot of people got in trouble and underwater with their mortgages, but you seem to think it won’t happen to you. The point is that you are young and sometimes rather cocky, and you are overconfident, and think you have it all figured out when it comes to money. I suggest you stay humble. None of us are above financial problems. Who knows, in a year or two your savings and 401k could get wiped out by some unforeseen thing. If I were in your shoes I’d stay humble and try to help people rather than disparage them.

79 C
80 Erika

There are pros and cons to buying vs renting. But consider that many people will retire and be confined to a set income each month – for the rest of their lives. And we can live decades after retirement. Doesn’t rent tend to go up over time, especially in more populated areas. Therefore buying a house and paying it off long before retirement would enable you to live better on a set income.

81 C

If you’ve saved for retirement, it doesn’t matter if you rent or buy a house. Even if rent goes up over time, it doesn’t go up that much. I lived in a place where it went up $5 every year. At that rate, it’s not going to have that big of an effect.

I don’t really believe in all this retirement crap, anyway. I want to do something I love so much that I never want to retire.

82 Erica

I lived in a place where rent went up two hundred dollar over 2-3 years. We all hope to do something we love forever but our bodies won’t always keep up, medical expenses increase. Just something to think about.

83 Ninja

Have to respond to your comment above here, since I can’t up top. Here was your comment…

“Also, way to take potshots at my financial mess. It’s clear that if someone in a financial mess comes here and shares their story, you’ll just insult them.”

And here’s my response….

Many, many, many readers of PDITF are in financial messes. I was in a financial mess when I started the freakin site. I know all about financial messes, and how to dig out of them.

But when a reader like you comes along who refuses to acknowledge the fact that I can be both responsible and carry a mortgage, I don’t know what else to do. It’s like you are picking a fight just to pick a fight. I said earlier I totally understand why you never want a mortgage. I think that’s a great decision.

You, however, have never once acknowledged mine, Evans, or Krystals responses as valid, or legitimate opinions.

So yes, I insulted you. Because you were having a one way conversation and I needed you to get your fingers out of your ears and listed.

When THREE financially stable people are telling you you’re wrong. It’s time to start listening, or at the very least be open-minded.

At some point I hope you find the humility to admit when you are wrong, instead of thinking everyone else is.

84 C

Krystal was essentially saying “You took out all that money to go to school? You’re an idiot.” So no, that’s not advice, that’s just insults.

85 Ninja

You’re right. You are awesome. I’m lame. Can we be done now please?

86 Evan

C,

You have some hardcore issues. She didn’t call you an idiot by any means, she simply laid out her priorities. Someone feels attacked, huh?

You are allowed to not want to own a home, but not to understand a simple balance sheet is a pretty deep deficiency in understanding basic personal finance concepts. I would go back and read some of ninjas early posts where he explains concepts with stick figures.

Can I take a guess at the essence of C, without you being insulted? Single, young (22 to 26), underemployed (you have some income but you aren’t doing what you want) and you think you deserve more from life? Am I close.

87 C

I’m 27.

88 Evan

Only thing I was wrong about though?

89 C

I would not put everything in those terms.

90 Justin

I’m a senior in highschool so I don’t plan on buying a house for at least ten years.

91 Larry

Smart move.

92 Walnut

Wow…what a conversation. I’m not a regular reader, but I thought I would add my perspective. I bought a house when I was 21. It was an affordable house, I put 20% down and gave me a 7 minute commute to a very stable job with a very stable company in an industry that does well during a recession.

This past year I refinanced from a 30 yr into a 15 yr. Why? Because I found that as hard as I tried to throw extra cash at my mortgage, I was getting screwed on my amortization table. Some healthy pay raises meant I could easily cash flow the payment and I want to be completely debt free by the time I am 30. (Disclaimer: I have 9k in student loans I will finish paying off by year end 2012.)

That said, I will never take on debt again in my life. Should I decide to sell my house and move, I will buy the next one with cash. I’d love a new car right now, but I refuse to take on an auto loan to do so. And frankly, when I have the cash I’ll probably throw it at the mortgage. (96k to go!)

I grew up on a farm to a pair of amazingly frugal parents. They were a shinging example of side hustle and snowball. We lived in a really tiny, crappy, rented house that was super cheap until they could afford to build a house with cash. My parents did not own a house until they were in their 40s and 100% debt free – including the land, equipment, and assets its takes to farm. It makes me question my “American dream”. Was it in my best interest to buy a house and live the American consumerism lifestyle in my 20s? Or is it a better American dream to be frugal, pay with cash, and enjoy the satisfaction of knowing that you don’t owe anyone a penny and have the freedom to really control your own destiny because you have the cash to do so?

What I do know is that I will side hustle and snowball to be debt free by 30 and I will never look back. Mortgage debt included.

93 C

Nicely done.

94 Evan

Nicely done, in terms that he can put a coherent sentence and contention together?

You really could have opened this conversation up to something so much more than what it turned in to. C, you could have hijacked the convo into whether a house was actually a good “investment” or whether it was just an alright investment that people’s instincts tell them is good.

Instead it turned into 20+ comments (of 90+) trying to understand what the hell your point was lol since you can’t properly lay out an argument. In the end it came to you not understanding what a balance sheet was and how it worked.

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