When your budget won't let you give gifts to everyone in the world—which is always, by the way—who should you give...
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We've all heard Dave say to never get a 30-year mortgage, but do you know why?
For starters, you're basically throwing your money away. Some people get a 30-year mortgage, thinking they'll pay it off in 15 years. Good intentions aside, this rarely happens. Why? Because life happens instead. You might decide to keep that extra payment and take a vacation. Or maybe it's time to upgrade your kitchen. What about a new wardrobe? Whatever it is, you'll find an excuse to spend that money somewhere else.
Want More Proof?
Let's check out the difference between the two options. A 30-year mortgage on a $225,000 home with 6% interest has a payment of $1,349. On that same house with the same interest, the payment on a 15-year mortgage would be $1,899. That's a $550 difference!
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That may not seem like much, but take a look at the bigger picture. When you pay $1,349 a month for 30 years at 6% interest, you are actually paying $486,000 for your $225,000 home.
Now how do those numbers work for a 15-year mortgage? A monthly payment of $1,899 for 15 years at that same interest rate will equal $342,000. So if you go with the 15-year mortgage, you'll save yourself $144,000 over the life of the loan!
Still Not Convinced?
You're still in that $225,000 home 10 years later. The 15-year mortgage has been paid down to about $98,000. However, the balance on a 30-year mortgage is only down to $188,000. What does this mean exactly?
It means that if you have a 30-year mortgage, you've paid almost $162,000, but you've only knocked $36,000 off the loan. So over the past 10 years, you've given the bank $130,000! Wouldn't it be worth it to pay a little extra every month so you could avoid that?
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If you think you're getting a better deal with a 30-year mortgage simply because you save a few hundred bucks each month, then you're only thinking short term. Go over the math again. If you open your eyes, you'll see that you're literally throwing away thousands of dollars. Don't fall into the same trap as everyone else—refuse to go with a 30-year mortgage.
Trust us—you'll be happy you paid the extra money each month to save yourself from years of debt.
In Financial Peace University, Dave draws on over 20 years of real estate experience to teach you how to win when buying or selling your home. Plus, he'll dissect all of the common mortgage options available today, showing you what to choose and what to avoid.
Find out how much you could save by paying off the house early with our online mortgage calculator.
And, if you're ready to buy or sell a home, it's best to work with a real estate professional who understands the market in your area. Our real estate Endorsed Local Providers are experts in your area who have earned Dave's recommendation. Get in touch with your real estate ELP today!