To Mortgage or Not To Mortgage: That Is The Question

I have heard so many people talk about getting a 15 year fixed mortgage versus a 30 year fixed mortgage or buying cash.  I am sure you have heard me quote Ric Edelman in the past about the reasons to carry a big, long mortgage and he’s correct.

In this article, “Don’t rush to pay off your mortgage,” I think they describe it best by saying “When it comes to home loans, we’ve become a nation of debt-a-phobes.”  It is easy to think that leverage is bad after experiencing the worst downturn since the Great Depression but it’s not when used correctly.

“You could save a lot of interest by choosing a 15-year loan over a 30-year — about $63,000 after taxes on a $200,000 loan for someone in the 28 percent tax bracket. But ask yourself whether you can really afford the higher monthly payment — in this case, $1,420 versus $955. Have you maxed out your 401(k) and built up an emergency fund? Paid off credit cards? Funded insurance policies and, if you desire, college savings? If you haven’t, choose the 30-year loan. And if you have, choose the 30-year loan anyway and put the difference between the two payments in a savings or investment account. You’ll build up a nest egg that might keep you afloat (and in your house) if you lose your job or get sick. The strategy requires discipline; setting up automatic payments helps.”

A mortgage is a financial tool when used correctly and you can build a larger net worth by taking out a bigger and longer mortgage when putting your leftover monies to work elsewhere.