15 or 30 Year Mortgage?


welcome to the Jill on money podcast we
are presented by Marcus by Goldman Sachs this is one of those little podcasts
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it would be our delight and pleasure to have you join us so if you want to be
the call of the week all you have to do is send an email ask Jill at Jill on
money.com that is what Alanna did she is on the
line she’s in California hello Alanna how are you what can I do for you hi Joe
I’m doing well I wanted to ask we are in the process of refinancing our primary
residence and we’ve only been in the home about two and a half years and my
husband wants to stick with the 30-year loan so that we have more money to
invest he says that this is you know a better return in the end and that’s
probably true but I’m kind of interested in going to the 15-year as well because
the rate slightly lower and we’d be able to pay down the balance quicker the home
is a higher priced home that only he could qualify for so my concern is that
if something were to happen to him that it wouldn’t be a payment that I could
make on my own for example so I kind of feel being a little bit more
conservative maybe I’m paying it down there might be a smart idea okay
discerning what you think yeah okay so first of all how old are each of you I’m
33 and he’s 36 kids are no kids no kid okay how much is the house worth right
now approximately three and a half million okay and the current mortgage
that’s outstanding that you’re refinancing is how much 2.3 million okay
when you look at that I mean I know that’s a big chunk that’s a big note
you’d be I it’s I know it’s funny to say the numbers but it’s just it’s just a
number so let’s not go crazy here yeah okay so you you both work right now yeah
so if he were to god forbid drop dead you say I couldn’t carry this but does
he have insurance could you could you just buy a two million dollar cheap term
policy and take care of it yeah and we’ve looked into that we don’t have
yet we just got married actually about three months ago so I’m sorry to kind of
look through some of these things and see great what we need to be protected
but at this point no okay how much do you guys earn together about one point
three five okay great so tell me a little bit about what’s going on so
you’re both working are you both maxing out your retirement I assume yes and he
and he is you know obviously very on top of this which is if you have a thirty
year your cash flow allows you to put money away in addition to whatever
you’re doing in retirement so are you guys actively doing that yes we’re both
currently nothing out the annual insurer 401k point oh great and then also he’s
putting some extra money because he makes more money than you he’s just
investing outside of retirement as well I presume yes we’re looking into trying
to do that and to try to get a little bit more passive income a possible so he
can pull back a little bit yep but I don’t want him to pull back I
wanted to keep working really hard so you can pay off this damn mortgage come
on okay so what’s the rate differential between the 30 and the 15 here on the
refi what’s the what’s the difference that we’re looking at right now at 0.35
percent what’s the difference between the two rates that are given it’s not
that big okay so here is what I’m going to tell you I hate to do this to you
he’s right he’s right I think that maybe we can split the difference here Ilana
because I think what I would suggest to you is you choose a 30-year mortgage
even though I it feels like oh my god I can’t have a mortgage into my 60s that’s
not what’s kind of going to happen what I think is going to happen is you take a
30-year then you have to capture the money that would have been going to the
15-year and make sure it’s invested the only way this really works is if you
don’t blow the extra money so if I’m just gonna like do round numbers if
there’s an extra let’s say 20 grand a year that is in your cash flow because
it’s a 30-year versus at fifteen year that 20 has to
be directed into a joint investment account it has to be because if you blow
20 grand on stuff then the numbers never worked in the first place right so if
you can kind of make a pinky swear with each other we’re gonna do this but we’re
gonna automatically start putting money into a Vanguard a tier o price of
fidelity a Schwab a TD Ameritrade any of these types of big companies where you
can put some money to work and get it going get it out of your hands
then the thirty-year works really well because what will likely happen is that
this is a pretty it’s a very low rate I know the word like three-year lows in
the market so you if you did this for ten or twelve years even what’s likely
to happen is you’re gonna whittle away at the mortgage and then maybe at that
time you can start to if you’ve accumulated a big chunk in in retirement
and non retirement assets then maybe you would choose to accelerate the debt pay
down of the mortgage but you don’t have to make that decision right now and you
are young so I like that idea however I’m going to hold your feet to the fire
you guys you have to start doing a little more planning which means you do
need some term life insurance you do need to get on the same page about what
that investment looks like and if you need the help of a financial plan or a
fee-only plan or anything like that let me know because I know a lot of people
in your area so I’m happy to help you out but what’s incredibly important is
we capture the extra money don’t squander this opportunity and then the
third year makes sense and if you’re really scared you’re gonna squander it
then do get the 15 year and pay it down okay all right thank you all right good
luck don’t forget to do your wills and your and all that stuff to like real
planning the investing is easy the big stuffs harder okay okay thank you good
luck okay that’s the call of the week if you have a financial question just give
us a holler send an email to ask Jill at Jill on money.com or go to the website
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Paul Whisler

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