How The 30-Year Mortgage Prevents Financial Independence
You already know a 30-year mortgage is an expensive way to buy a home. But your mortgage could also cost you the chance to become financially independent. The 30-year mortgage was always a bad idea. It simply enabled borrowers to buy more house than they could afford by spreading the payments out over a longer term. In addition, you will pay tens—even hundreds of thousands of dollars more in interest.
That's why I never recommend a 30-year mortgage. If you don't pay cash for your home, get a 15-year mortgage with at least a 10% down payment and monthly payments that are no more than 25% of your take-home pay.
The difference between a 15 and 30-year mortgage with a 6% interest rate on a $225,000 home is $144,000 over the life of the loan. What could you do with $144,000? Pay for your kids' university? Buy an investment property?
What if you invested that $144,000? Invested as a lump sum, it would grow to a million dollars in just 17 years. You'd have $2.5 million in 25 years. On the other hand, what if you invested your house payment for 15 years after you paid off your 15-year mortgage? One year later, you'd have a million bucks. Ten years later, you'd have $3.5 million.
Are you ready to give up the opportunity to be financially independant? If you are, buy a home you cannot afford. Do the math and be shocked by the results.