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30 or 15-year Mortgage Calculator

4/6/2014

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Are you debating should you go with the 15-year loan or 30-year loan?

Compared with the 15-year mortgage, the 30-year mortgage tends to have lower monthly payment. If you believe you can achieve certain consistent investment return, then it is advantageous to use the following strategy:
  1. Choose the 30-year mortgage
  2. Set aside monthly payment based on 15-year mortgage schedule
  3. Instead of sending the extra payment to the lender, invest the difference between the 30-year and the 15-year loan's monthly payments difference yourself
  4. At the beginning of 16th year, start paying your 30-year mortgage by taking money out of your investment account
  5. If the calculator below indicates you will have a positive end of 30-year balance, you should use this strategy.

As you can see, this strategy essentially is like taking a 15-year mortgage, but instead of sending the higher monthly payments to the lender, you are investing yourself and end up walking away with a paid-off mortgage, along with an investment account with a positive number.

The key factors impacting the final result are:
  • 15 and 30-year mortgages' loan amount and rates
  • Your expected annual investment return
  • The short-term investment gain rate
  • The income tax rate (to pay for the short-term investment gains)

Now, plug in your own numbers in the yellow area below and see if this strategy works for you or not.
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