How much lower is the interest rate on a 15 year compared to a 20 or 30 mortgage

[SyZ]

I'm drafting up an excel document showing the amortization tables of each, and so far I've proven that if you have a 30 year mortgage and make payments at the same level as if it were a 15, you'd be done in exactly 15 years and the amortization tables make the same. Therefore, the only incentive to get a 15 or 20 year mortgage would be if the rate were lower, and we know it is. But is it always set at a % of the 30 year, or does it fluctuate, or is there something else going on I'm not aware of?

[mr_orange]

The 15-year rate is almost always lower than the 30-year rate.   A normal yield curve has higher rates for longer duration money. 

Real estate investors generally select a marginally higher rate for having the 30-year note.  This gives them less required debt service in times when cash flow is tight.  Liquidity equals staying power and lower debt service is a good way to gather increased liquidity. 

[rachael talcott]

I'm drafting up an excel document showing the amortization tables of each, and so far I've proven that if you have a 30 year mortgage and make payments at the same level as if it were a 15, you'd be done in exactly 15 years and the amortization tables make the same. Therefore, the only incentive to get a 15 or 20 year mortgage would be if the rate were lower, and we know it is. But is it always set at a % of the 30 year, or does it fluctuate, or is there something else going on I'm not aware of?

It is not set.  It just depends on what each bank wants to offer.

[slugline]

The difference is pretty much a function of market supply and demand. But yeah, the 30-year interest rate should be expected to be higher. If it wasn't the case, why would anyone rationally choose a 15-year term (assuming the other costs to originate the loan are the same)?

[forummm]

It's based on a lot of different market forces. Quotes you get today could easily have a different ratio than quotes you got 3 months ago. The yield curve has flattened a lot as expectations about long term interest rates have declined.

[forummm]

Was just quoted 2.875 for the 15 and 3.375 for thirty on a refi. I will do the former although I suppose the usual pay mortgage faster v invest debate applies to this as it would to pre-pay. Don't like debt even when it's cheap.

Wow, that's a narrow spread. Just for the inflation hedge I would take the 30 and make only minimum payments.

[Bajadoc]

It is a bit lower but you still get ripped off. Focus on paying off the rip off loan as soon as possible.

[boarder42]

It is a bit lower but you still get ripped off. Focus on paying off the rip off loan as soon as possible.

Not sure I understand your statement. Almost all loans even 30 year are right at inflation for below right now. I'm refitonancing  a 30 at 3.25. Crazy awesome 30 year inflation hedge. But if you want to see the real difference and your talking taxable vs paydown(which is all you should care about bc if you aren't maxing tax ADVANTAGED this isn't even a realistic debate.

michaelbluejay.com/house/15vs30.html

Break even is usually around 7 years give or take.

[mr_orange]

It is a bit lower but you still get ripped off. Focus on paying off the rip off loan as soon as possible.

Not sure I understand this statement either.  I'd love to have LOADS of debt on quality property at the ridiculous rates we currently have. 

[socalteacher]

I just refinanced to a 15 year fixed at 2.5%. My total cost was $900. I was at a 3.5% and paying on it like a 15 so this made sense to switch given that we wanted to hit a certain payoff date.

We were quoted for a 30 year at 3.25% (no costs) and 25 year at 3.25% (no cost).

[Dicey]

It is a bit lower but you still get ripped off. Focus on paying off the rip off loan as soon as possible.

Not sure I understand this statement either.  I'd love to have LOADS of debt on quality property at the ridiculous rates we currently have.

Me three.

[boarder42]

OP

go to zillow and look up rates on 30 vs 20 vs 15 it should give you a pretty good go by of what the market is

then assuming you're using money that would be invested in taxable accounts use this calculator to determine break even

michaelbluejay.com/house/15vs30.html

if you arent maxing the following a 30 year will likely be better if it allows you to increase contributions

401ks
IRAs
HSAs
any of those govt ones if you're a govt employee

[DK]

I'm also looking to refi again to a 30yr @ 3.25, insane rate/payment to lock in over 30yrs. Let inflation pay the mortgage down for you.

[boarder42]

I'm also looking to refi again to a 30yr @ 3.25, insane rate/payment to lock in over 30yrs. Let inflation pay the mortgage down for you.

yep exactly.  inflation avg's 3.22% and typically home values have tracked with inflation meaning you're paying an effective rate of 0.03% at a 3.25% interest rate.  and if you bought your house with any level of equity which most savy buyers would have you're probably not even paying interest based on those 2 assumptions.

[MMMarbleheader]

I am looking to refi into the 15 year at 2.5%.

I understand both sides of the argument but I like the time table to get out of debt for my personal home. Even if I am not FI, I like the idea of not needing alot of income to meet my expenses.

Now for rental properties, I am all for 30 year mortgages.

[ender]

I just refinanced to a 15 year fixed at 2.5%. My total cost was $900. I was at a 3.5% and paying on it like a 15 so this made sense to switch given that we wanted to hit a certain payoff date.

We were quoted for a 30 year at 3.25% (no costs) and 25 year at 3.25% (no cost).

Was this with your current bank? We just bought a home at 3.625% and are a bit sad we didn't wait a month or so as our rate could have been a lot lower..

[Bajadoc]

It is a bit lower but you still get ripped off. Focus on paying off the rip off loan as soon as possible.

Not sure I understand this statement either.  I'd love to have LOADS of debt on quality property at the ridiculous rates we currently have.

Me three.

I just can't stand debt, no matter how it is rationalized. People should do what works for them.

[FerrumB5]

I just refinanced to a 15 year fixed at 2.5%. My total cost was $900. I was at a 3.5% and paying on it like a 15 so this made sense to switch given that we wanted to hit a certain payoff date.

We were quoted for a 30 year at 3.25% (no costs) and 25 year at 3.25% (no cost).

AFAIU, buying points on refi means that they will be spread out for life or new loan for tax purposes, unlike a first loan with points. Should we be worried about that? I have options of going from 3.625% to 3.375% w/o points and 3.215% for $1700 with points 

[boarder42]

I just refinanced to a 15 year fixed at 2.5%. My total cost was $900. I was at a 3.5% and paying on it like a 15 so this made sense to switch given that we wanted to hit a certain payoff date.

We were quoted for a 30 year at 3.25% (no costs) and 25 year at 3.25% (no cost).

Was this with your current bank? We just bought a home at 3.625% and are a bit sad we didn't wait a month or so as our rate could have been a lot lower..

I just bought at that same rate in Feb. You typically have to wait 6 months to do the actual refi but 60 day locks could be had a week ago at 3.25% in my area so I did it

[boarder42]

It is a bit lower but you still get ripped off. Focus on paying off the rip off loan as soon as possible.

Not sure I understand this statement either.  I'd love to have LOADS of debt on quality property at the ridiculous rates we currently have.

Me three.

I just can't stand debt, no matter how it is rationalized. People should do what works for them.

Math is a rational non emotional subject that speaks for itself. "Can't stand" is an irrational emotion when followed by encompassing everything under one hat

[2buttons]

Math is a rational non emotional subject that speaks for itself. "Can't stand" is an irrational emotion when followed by encompassing everything under one hat

Agreed. Taking a 30 year over a 15 year allows you to potentially make a few thousand dollars more in exchange for 15 or more additional years where you potentially could default on your mortgage and lose your house/"investment." For those mathematical reasons, I have a 15 year that I am currently paying as if it was a 12 year or less. 

Add me to Team Bajadoc.

[boarder42]

Math is a rational non emotional subject that speaks for itself. "Can't stand" is an irrational emotion when followed by encompassing everything under one hat

Agreed. Taking a 30 year over a 15 year allows you to potentially make a few thousand dollars more in exchange for 15 or more additional years where you potentially could default on your mortgage and lose your house/"investment." For those mathematical reasons, I have a 15 year that I am currently paying as if it was a 12 year or less. 

Add me to Team Bajadoc.

just wondering if you plan to use investments in retirement to live on ?  ie the 4% rule.

and its not a few grand difference.  we're usually talking a few hundred thousand dollar difference.  and your arguement is 100% ass backwards from a security standpoint.  make extra principal payments on a 15 year loan vs having a 30 year and investing the difference is less safe from a lose your house standpoint.  but you know math's hard.

[Jack]

I'd love to have LOADS of debt on quality property at the ridiculous rates we currently have.

The rates are so low that I want to buy investment property just so I can take out more mortgages!

(Okay, so not literally... but it is a big factor.)

I just wish I had money saved for a down payment and that property prices weren't so high right now.

[sirdoug007]

These are the current rates from PenFed for fixed conforming loans.  PenFed has consistently low rates from what I have seen

30yr: 3.375%
20yr: 3.25%
15yr: 2.75%
10yr: 2.75%

https://www.penfed.org/compare-mortgages/

The spreads have compressed a bit as the yield curve flattens.  I remember not that long ago a 1% difference between 15 and 30 year loans, now it's 5/8.

[2buttons]

Math is a rational non emotional subject that speaks for itself. "Can't stand" is an irrational emotion when followed by encompassing everything under one hat

Agreed. Taking a 30 year over a 15 year allows you to potentially make a few thousand dollars more in exchange for 15 or more additional years where you potentially could default on your mortgage and lose your house/"investment." For those mathematical reasons, I have a 15 year that I am currently paying as if it was a 12 year or less. 

Add me to Team Bajadoc.

just wondering if you plan to use investments in retirement to live on ?

and its not a few grand difference.  we're usually talking a few hundred thousand dollar difference.  and your arguement is 100% ass backwards from a security standpoint.  make extra principal payments on a 15 year loan vs having a 30 year and investing the difference is less safe from a lose your house standpoint.  but you know math's hard.

I have retirement investments that are being fueled heavily - thanks to self-employment. I also have a decently sized cash position for when it rains.   

A few hundred grand? Have you done the modeling?  Mine worked out to $20k in all the calculators I used.

Here just use this example to see what I mean https://thefinancebuff.com/borrow-30-year-and-invest-the-difference.html

[Bajadoc]

It is a bit lower but you still get ripped off. Focus on paying off the rip off loan as soon as possible.

Not sure I understand this statement either.  I'd love to have LOADS of debt on quality property at the ridiculous rates we currently have.

Me three.

I just can't stand debt, no matter how it is rationalized. People should do what works for them.

Math is a rational non emotional subject that speaks for itself. "Can't stand" is an irrational emotion when followed by encompassing everything under one hat

It turns out that the behavioral (emotional) part of finance is more important than the rational (math) part. I think it is accepted that building wealth is about 20% math rational stuff and about 80% emotional behavioral stuff. I could be wrong but it works for me. People should do what works for them, good luck.

[boarder42]

Math is a rational non emotional subject that speaks for itself. "Can't stand" is an irrational emotion when followed by encompassing everything under one hat

Agreed. Taking a 30 year over a 15 year allows you to potentially make a few thousand dollars more in exchange for 15 or more additional years where you potentially could default on your mortgage and lose your house/"investment." For those mathematical reasons, I have a 15 year that I am currently paying as if it was a 12 year or less. 

Add me to Team Bajadoc.

just wondering if you plan to use investments in retirement to live on ?

and its not a few grand difference.  we're usually talking a few hundred thousand dollar difference.  and your arguement is 100% ass backwards from a security standpoint.  make extra principal payments on a 15 year loan vs having a 30 year and investing the difference is less safe from a lose your house standpoint.  but you know math's hard.

I have retirement investments that are being fueled heavily - thanks to self-employment. I also have a decently sized cash position for when it rains.   

A few hundred grand? Have you done the modeling?  Mine worked out to $20k in all the calculators I used.

Here just use this example to see what I mean https://thefinancebuff.com/borrow-30-year-and-invest-the-difference.html

A 200k mortgage at today's rates makes 114k on a 30 year investing vs a 15 year then investing after paydown.

[2buttons]

A 200k mortgage at today's rates makes 114k on a 30 year investing vs a 15 year then investing after paydown.

This is woefully inadequate to even begin to objectively analyze it. Provide your assumed inputs so we can actually do the math.

Also, did you take into account the interest savings on a better rate from the 15 year mortgage which is tens of thousands of dollars less paid?   

[boarder42]

Yep it's taken into account. Use the link I posted above it will do the math for you.

typical pay back on the invest the difference is in 7 years or so.  anything passed that is gravy for the 30 year.  you cant just do the difference at the end of 15 years you now have to take into account that you have 409k thats not invested in a house and is growing at 7% real return give or take vs a guy just starting to save his whole mortgage payment from that point on. your link only goes to end of 15 years a 30 year mortgage is for 30 go to the end of 30 and you will see the massive returns ... not to mention the inflation hedge etc. i'm done arguing with you if you dont see the point that at historically low rates taking out a 15 year is a bad decision and even worse paying it down faster!

[ender]

I just bought at that same rate in Feb. You typically have to wait 6 months to do the actual refi but 60 day locks could be had a week ago at 3.25% in my area so I did it

Maybe I'll check with my lender and see if I can't do something. It'd feel a bit lame to refi so close to having bought but I guess I'll see if the math makes sense.

[FerrumB5]

I just bought at that same rate in Feb. You typically have to wait 6 months to do the actual refi but 60 day locks could be had a week ago at 3.25% in my area so I did it

Maybe I'll check with my lender and see if I can't do something. It'd feel a bit lame to refi so close to having bought but I guess I'll see if the math makes sense.

I bought at 3.625% for 20 yr, now after 8 months I'm going to refi at 3.125% for same 20 yr for 1700 fee (justified in 1 yr and 7 mo).
I was prepaying 1/12 to date, but after I made recalculations and took into account a couple more factors I won't prepay again - simply invest the difference. We'll see what the rates will be in 2 years

[FerrumB5]

A 200k mortgage at today's rates makes 114k on a 30 year investing vs a 15 year then investing after paydown.

There's something I must be missing here. I only got ~62k, not 114k. Willing to help me out so I could use it later?
Here's what I got using your 200k example:

Scenario 1. 3.375%, 30 yr, 200k mortgage. Payment is 884/mo. Total cost of mortgage is 318k.
Scenario 2. 2.750%, 15 yr, 200k mortgage. Payment is 1357/mo. Total cost of mortgage is 244k.
Note that the interest on mortgage is IN the total cost, so this is accounted for.

Now, delta per month is 1357 - 884 = 473

Let's invest this money.
Scenario 1: For 30 years we put $473 at 7% and we get value after 30 years of 573k
Scenario 2: for 15 years we do nothing, then for 15 years we invest 1357 and get 437k value after total 30 years

diff in net worth after 30 years is (573-318) - (437-244) = 62k

I feel like I'm missing smth on Scenario 1 investing?

(P.s TAXES, tax deductions are not accounted for above)

[2buttons]

I double checked your numbers and it's accurate. So, if you spend 1/3rd of your life paying your mortgage, and you have zero hiccups, and don't move, you might make $66k.

To each their own, but this plan is not for me.

[SyZ]

Not at home to do the math, but I believe Ferrum's math has one critical error:

The 244k figure is at the 15 year mark, not 30, so the line that results in 62k is invalid

This thread makes me sad I don't have 40k for a down payment

[FerrumB5]

Not at home to do the math, but I believe Ferrum's math has one critical error:

The 244k figure is at the 15 year mark, not 30, so the line that results in 62k is invalid

This thread makes me sad I don't have 40k for a down payment

15 year mark because for first 15 years we put all money into mortgage, and then this money frees up. After another 15 years (to match 30 yr mortgage), we have exactly 244k

[fishnfool]

I like the flexibility of using a 30 year loan, especially for investment properties. I just locked into a 30 year at a rate of 4%. This will free up extra cash flow from my rental that I plan to invest in another property if the right deal presents itself.