Choose 30 over 15-year Mortgage and Invest the Difference?

Q. Should I choose 30-year mortgage over 15-year mortgage but still pay at the 15-year mortgage amount, except I will be investing the extra amount on my own?

A. 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 stated strategy:

1. Choose the 30-year mortgage
   
2. Set aside monthly payment based on 15-year mortgage schedule
   
3. Instead of sending the higher payment to the lender, invest the difference between the 30-year and the 15-year loan's monthly payments difference by 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)

You can try our online calculator to see if this strategy works for you or not.

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