Mortgage: 15 Year Note or 30 Year Note?

Oh I love this topic!  I am so passionate about it because IT WORKS!  Let me first start with a quote from my favorite financial adviser, Dave Ramsey, regarding this topic: “Thirty year mortgages are for people who enjoy slavery so much they want to extend it for fifteen more years and pay thousands of dollars more for the privilege.” 

Now you might guess the answer to the question: 15 YEAR NOTE all the way.
 
You’re either one/or more of these five people:

1. You live in an apartment (or with parents) and will be buying a house in the future – you people really need to read this…you have the advantage.
2. You live in a house currently and are making payments on a 30 year mortgage – you need to pay extra payments (based on a 15 year note) or refinance (read towards the end of this post in red to see if this is a smart move).
3. You live in a house currently and are making payments on a 15 year mortgage – you are on the right track, but make a goal to pay even more if you can.  And I bet you can.  This is what we did.  Our 15 year note became a “not even” 3 year note (33 months), but we were in a good situation.  We were DINKS (Double Income, No Kids…oh the days).
4. You live in a house, but are planning to move into another one in the future – this will be useful information for your future home as well.
5. You live in a house you actually own!!! – Bravo!  You must be reading my blog because you just love me or perhaps you love seeing my awesome baby – I don’t blame you!  I’m totally kidding…well kind of.
 
I’ll start with WHY you should get a 15 year note versus a 30 year note, which is always what seems to be “recommended.” 

• You will NOT pay extra on your mortgage like you promised yourself when you were signing the 30 year note!  97.3% of people do not make extra payments.  Most people do a 30 year note, with the idea of paying it like a 15 year.  That way if something goes wrong, you can use the extra money…Umm, something will always “go wrong.”  I find that every month, something comes up, especially if you own a home.
• Mathematically, it makes sense!  Dave Ramsey gives an example in his book that I’ve shared below.  This was our debt amount as well, but I believe our interest rate was a little lower.

• Your tax deduction that you get for having a mortgage is NO bargain!  I just have to quote Dave Ramsey from his book regarding this issue because he says it so much better than I could, and well, he’s hilarious:  “If you have a home with a payment of around $900, and the interest portion is $830 per month, you have paid around $10,000 in interest that year, which creates a tax deduction.  If, instead, you have a debt-free home, you would in fact lose the tax deduction, so the myth says keep your home mortgaged because of tax advantages.  This situation is one more opportunity to discover if you CPA can add.  If you do not have a $10,000 tax deduction and you are in a 30 percent bracket, you will have to pay $3,000 in taxes to the IRS.  Personally, I think I will live debt-free and not make a $10,000 trade for $3,000.  However, any of you who want $3,000 of your taxes paid, just email me and I will personally pay $3,000 of your taxes as soon as your check for $10,000 clears into my bank account.  I can add.” 
• 15 year notes just sounds so much better.  I remember when Ryan got a 15 year note for the house.  I could see the light at the end of the tunnel.  Of course I didn’t know that light was around the corner.  But a 30 year note?  That just sounds SO far away.  We got the house when I was 22, so that would’ve meant paying it off at 52.  Oh geez…we would have probably been through one or two houses by then and our kids off to college.