patrick.net

My spreadsheet tells me that $400,000 @ 5% for 30 is $2500/mo PITI etc.
4% for 15 is $3400/mo so the difference is $10,800/yr extra.

Principal after 15 years on the 30 is $260,000. Putting away $10,800 a year and getting a 5% compounding return will give you around that or a bit more.

So after 15 years you can have the place paid off and not have to worry about mortgage payments, or owe $260,000 and have about that much in savings. Assuming 5% after-tax investment returns of course.

What's going to happen with housing prices and interest rates over the next 20 years is a good question.

Japan entered their ZIRP regime almost 20 years ago.

We will only be able to voluntarily exit ours if & when we get economic bubble lending like we got 2004-2006, or the tight labor market of the late 90s. Chances of this are pretty slim I fear.

The Fed/Treasury complex may be involuntary evicted from ZIRP, and if so it is possible that mortgage rates and treasury rates would become decoupled. Higher cost of borrowing for the Treasury would divert government spending from the real economy (demand side) to the wealthy trickle-down economy and would exert downward pressure on home values from the money being retracted from consumers.

If worst comes to worst, I think the Fed will simply print money to support the mortgage market, just like they did in 2009 but with greater purpose and visibility. 5 million loans a year would be $2T in monetary expansion to get started, but once the Fed has payments coming in further monetary expansion would be reduced.

Everything's a real mess now so predicting what's going to happen this decade or next is really useless. In normal times, I'd prefer the more certainty of the 15 year plan, but there's a good case to be made to preserving your cash, too.

"but taking out those personal aspects, which is better?"

that depends on the spread between 15 years and 30 years which is about 625 basis point currently. net of tax, the spread is even less.

To the extent that one of your finanical goal is to pay off your home as soon as possible, then you'll take the lower interest rate and go with 15 years fixed.

To the extent that you want to pay for flexability (tie less money into repayment) to invest in stocks, another house, or just want to keep fixed cost lower, etc. then 30 years may be better. For me @33 with growing family and many proven opporuntity to earn 9% or more, I rather use a 30 years mortgage if the spread is just 625 before tax deductions.

Thanks for the thorough answers. Considering the spread isn't very large, it may make the most sense to go with the 30 yr and then just pay a little extra each month/year, if we wind up wanting to pay it off early.

I am refinancing now. 30 yr fixed conforming jumbo at 4.875. 15 year conf jumbo is 4.25.

I picked 30 yr. My situation is like SF Ace. I would rather have more flexibility and ability to invest elsewhere. And there's a reasonable chance over the next 30 years that we would have a bout of inflation, thereby reducing my debt in real terms. And, I expect to work for 25 more years, so the tax deduction will be valuable. And the 625 bp is not such a big gap. 5 years ago the difference was bigger so then a 15 yr made more sense.

for someone who might retire sooner, the 15 year can be better, because in retirement you'll have less income and therefore less need for the tax deduction.

Assuming 5% after-tax investment returns of course.

For me @33 with growing family and many proven opporuntity to earn 9% or more,

In what looks to be a near-zero-interest-rate era, you guys seem awfully confident about your investments.

Over here in zero-interest Japan, I pay more in monthly bank transfer fees than I get back in interest, and the stock market is hardly a safe place to put money.

The safest investment possible is early repayment of one's debt. I'm about to completely pay off the home renovation loan that I still owe about $16,000 on at 3.475%. There's no way I could safely earn anywhere near that much holding onto my cash.

IMHO go with the 30 year, and pay it off as if it were a 15 year.

EastCoastBubbleBoy says

IMHO go with the 30 year, and pay it off as if it were a 15 year.

Amen, brother!