Hello, thanks for reading our post. My wife and I write to you requesting input. We started reading MMM a few years ago and over time have gone lean on our home budget, started investing into VTSAX, changed over cell phones to Republic Wireless, and are now closing on our house June 1 so we can move into a less expensive home and accellerate our path to financial independence.
We're wrestling with taking out a 15-year mortgage or a 30-year and investing the difference in the monthly payment into VTSAX... I know, a common topic in the MMM community.
A little backstory, I am 33 and our goal is for me to retire in 15 years. We bought a 30+ year old business a year ago March and things there are starting to get on-track (the prior owner had wound it down quite a bit). We draw $4,000/month for living expeneses and take another $500/month to put toward our VTSAX. Once we build the business up, we're hoping to get to where we can put 50% of our income toward VTSAX.
When we retire, we would like to continue our current way of life, which costs about $48K per year (including the mortgage), so using the 4% SWR, that's $1,200,000 needed to retire. If we were to do the 15-year mortgage and have that expense eliminated, our monthly budget needs would drop to around $35K per year, so $875,000 needed in the bank to retire.
On our new place, we're looking at borrowing about $150,000 at 4.5%. With the 15-year, the monthly payment would be $1,147 and at 30-years it would be $760. If we took the difference ($388) and invested that monthly, that would be worth about $121,000 at the 15-year mark, assuming a 7% return.
I've read the arguements saying it is more profitable to take the 30-year and invest (ignoring the peace of mind aspect), but looking at my math here (which could be missing something), comparing the investment growth going the 30-year route ($121,000) to the 15-year route with the decreased savings needed to be able to retire morgage free ($325,000), doesn't it make clear sense to do the 15-year and pay off that mortgage? I've read many of the discussions in the forum about this topic but haven't seen this approach to it, which seems like the best way to look at the situation for my wife and I.
I would be grateful to hear input about this. Many thanks. - Ben