Reality is the 15 pays $132,676 in interest vs 30 pays $220,289 over 180 payments. That’s a delta of $486 a month in savings.

http://calculators.aol.com/tools/aol/home06/tool.fcs?param=sGx*tHp5pnsNrWp0pmpxtmBEtGlyt211tA@@

180 payments of $79.80 is $14,364, not the $10,788 you claim your calculator told you.

AND you can only refinance if rates go lower, otherwise you lose money.

Am I missing something, or possible doing the numbers totally wrong?

The 30 year term will always result in more interest, because you’re carrying the balance for twice as long! But the value comes in what you can do with the money instead of paying it to the bank. If you can’t do anything worthwhile with it (anything better than getting 5.62% on it, for example) then by all means, get the 15-year loan and save the extra $19K.

As one who has never lived in any one place for particularly long, I find the discussion about “getting the house paid off” kind of irrelevant to me. I’m leaning towards a 30yr for the added flexibility and for the investment opportunity of the additional cash. The 15 yr kind of strikes me as the type of mortgage to take out if a) one is looking to instill self-discipline and b) one plans to go deep into the term of the mortgage. Is that a decent way to read this decision for one in my situation?

Thanks for this post and for the discussion. Very helpful and great timing given I plan to refinance a 7/1ARM into a fixed this summer.

One aspect that I don’t necessarily agree with is the notion that $10,788 isn’t a lot of money in the context of a $300,000 mortgage. I think that $10,788 in today’s dollars IS a lot of money to someone who has a $300,000 mortgage. It shouldn’t matter that the $10,788 in savings is coming from a $300,000 mortgage. It’s the same as if you had saved it in any other way.

If you think about it, there’s very few ideas that someone could read on a blog that would save them more than $10,000.

I do agree that you have to look at your own situation and decide whether the flexibility is important enough to you. Especially important is the stability of your job in this economic environment. I think the post does a great job of spelling out the real costs of the example mortgages.

Banks like to reduce their risk by getting dollars returned sooner; plus this way they can loan out those dollars again. They offer incentives for such behavior (lower rates on a 15 year).

There are individuals who feel more comfortable allowing the bank/lender to hold the majority of risk for as long as possible – maybe even indefinately, thru refi’s or interest-only loans.

Learning to mitigate risk to zero or near zero is what banks move toward (banks, not bankers). We could learn from this.
–Dave Charbonneau, CER

Good analysis, though.

That’s a big if. With marketing and advertising being what it is a 15 year mortgage may be the only discipline people can muster to get rid of debt sooner rather than later.

To Funny About Money — one should always be building equity in their home regardless of market conditions. No one can time the real estate market cycle any more effectively than they can time the stock market cycle. If we could, we’d all be multi-millionaires. I really don’t think we’ll see an accelerated boom like we did from 2000 – 2005 ever again but the cycle will come back and appreciation will occur and when that happens people who have slowly but surely been building equity by paying down their mortgage will be in a better position to enjoy the good times (assuming they want to move…which is not a given).