As many of you know, we bought a new house in January of this year.  And unfortunately, the whole thing was a little strange.

We’ve applied for many mortgages in the past- either for our primary residence, rental properties, or the various times we’ve refinanced- but this time was different.  Since I became self-employed in April of this year, the bank would no longer count my income toward our loan.  That meant that only Greg’s income would count.  And since we made significantly less on paper, we were held to stricter standards.  Because of the strange circumstances, I had to send and resend documents ad nauseam.  In short, it was a huge pain.

Your Mortgage: Is Thirty Years Too Long?

Part of the reason our supposed limited income was so troublesome was that we had chosen to go with a 15-year-loan instead of a 30-year-loan. Basically, since we chose a loan with a shorter term and a higher payment, that mean that we qualified to borrow even less.  However, we still thought that a 15-year-loan was right for our situation.  Here’s why:

  • DSCF3358Thirty years is sooooooooo long.  Since I’m thirty-four years old, I feel like I have a pretty good concept of how long that really is.  Spoiler Alert:  It’s a long time.  I simply cannot imagine paying on a loan for what amounts to a middle-age lifetime.
  • We want to retire early.  A thirty-year mortgage might have been an option when we were twenty, but we’re getting old.  Like I said, we’re thirty-four, and paying the minimum on a thirty-year loan means that we would be in debt until our mid-sixties.  No thank you.
  • Our 15-year-loan offered a lower rate.  Loans with a shorter term typically come with a discounted interest rate.  And that’s true whether you’re using Caliber Home Loans like we did or another lender like Homepath Loans. 203K Loans, or even Quicken Home Loans.  The discounted rate might not be a lot, but it can definitely add up to a lot of money over the term of the loan!
  • We’re not moving.  I actually said this about our last house, but this time I believe it to be true.  We plan to stay in this house forever, or at least until our kids move out.  That’s a long time.  Therefore, we actually want to pay this baby off and own it free and clear.

The Advantages of a Thirty-Year-Mortgage

Even though a thirty-year-mortgage might not be the quickest way to own your own home, there are still plenty of reasons going this route could be beneficial.  A few of the advantages:

  • A thirty-year-loan offers added flexibility.  If you choose a thirty-year loan and want to pay it off sooner, you can prepay that baby and turn it into a 15-year-loan if you want.  Hell, you can turn it into a 5-year-loan.  Many people find that added flexibility worth it, even if it means paying a slightly higher interest rate.
  • The payment may be lower.  Many people choose loans with a longer term because they want the convenience of a lower payment.  I don’t blame them.  A lower payment can be an attractive deal if you suffer from income instability or expect your circumstances to change over the term of your loan.
  • People love their home mortgage deduction.  I’m not particularly in love with mine, but many people have some serious appreciation for their home mortgage interest deduction.  Of course, everyone’s tax situation is different, and those who pay a lot in taxes are more likely to appreciate the value of such a deduction.
  • They want to invest instead.  With interest rates so low, it makes sense when someone chooses a loan with a longer term so that they can invest the rest.  I mean, the rate on a 30-year loan dipped to as low as 3.52 percent in May of 2013.  It’s hard to argue that you couldn’t earn more than 3.52 percent in the stock market over time, am I right?

Everyone’s situation is different and the type of mortgage you choose is an entirely personal decision.  However, I think that thirty years is just too long.  I’d even argue that most people who choose a thirty-year-loan have no intention of paying their house off, or don’t even care if they do.  In fact, a thirty-year-loan is sometimes the best way to get into a house that you can’t really afford to begin with.

What do you think?  Is a thirty-year loan too long and boring?  Or, do you prefer the flexibility of a longer loan with a lower payment?