Ag97 said:
Depends on your financial situation. If you are comfortable you are secure in your income/jobs and can easily make the 15 year note payments for the next 5 to 7 years, it will save you a little money to do it this way.
That being said, interest rates are so low currently, that financing a 30 year note at 2.75% vs. a 15 year note at 2.5% is relatively the same if you just pay extra on the 30 year note every month.
This is what I'm currently doing on a home purchase we are in the middle of. I like to have the flexibility of being able to pull back on my monthly payments if for some reason things go south and I don't have as much cash on hand.
One other thing is with interest rates being so low currently, take the 30 year payments and any extra funds you would have put towards a 15 year note, you invest in the market for the next 5 to 7 years and hopefully you earn more on that money than the <3% interest you are paying on the home loan.
I agree with this. In the past, the 30 vs. 15 yr interest rate % arbitrage was much wider. For example, when we bought our first home 7 years ago, I refinanced from a 30 to a 15 after our first year or so. Our 30 was ~3.8% and we went with a 15 at 2.4%. A drop like that in interest shrunk the gap in total payments. I think our payments went up like $200 a month to move to a 15 year, which was a no-brainer for us.
As far as taking the extra and investing it and it working out better - yes, technically, it should in the long term.
However, we like to "spread" things around and lock in certain returns. Sometimes, mentally, it's better to just not see that money. We moved to a 15 year, and even paid extra on top of that. It was nice when we went to sell the house just 5 years later. On an original ~$240k note, we had $180k balance when we sold - that cash at close (+ the run up in value of the home) helped us upgrade significantly when we built our next home.
