Should you get a 15 or 30 year mortgage

15 year vs 30 year which mortgage is better and why. However today, I’ll break down both sides and tell you exactly which one I think is better and why.

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1. My Rule when buying real estate
– You buy based on your income not how much the bank will lend you ( no more than 33% including taxes, insurance, and maintenance )
– You also buy with a 20% down payment not how much the bank will you put it down ( usually 3.5% and sometimes no money down )
– And you also get a 30-year mortgage over 15-year mortgage

Here is the Problem:
– Most people when they buy a house, they take the maximum of what the bank would give them ( usually a debt to income ratio of sometimes 50% – which is a lot of money )
– They don’t put down 20% they actually put down 3.5% and some even borrow money to get no money down ( bad idea )
– They get the longest mortgage 30 years ( because that’s the only way they can justify that expenses )

For example:
– A half a million dollar property so $500k ( you only need an income of $63k a year if they use 50% debt to income ratio ) – its trap it’ll be nearly impossible to pay it off early
– Only requires 3.5% which is around $17,500 ( anyone with a decent income can save that ) – but 20% is 100k that would make you think twice
– And on a 30-year mortgage, with taxes, mortgage, insurance; it’ll only cost around $2,753 per month
– However with a 15 year would cost you $4,056 ( which instantly scream don’t buy this you cant afford it )

Obviously:
– The reason Dave Ramsey recommends the 15-year mortgage is because he knows that, this way you can stick to a house you can afford
– Because most people are not going to follow all the rules in the first place
– So it makes sense ( but if you’re going to follow the rule a 30-year mortgage Is still solid in my book )

2. So for all my Visual Learnings
– Let’s use a real-life example, with a real income and real house

First Rule:
– We buy based on your income not what the bank will lend us
– So that’s a max of 33% of our after-tax monthly income
– And you also want to be debt-free before buying a house
– So if my income is $50,000 a year after taxes, then that’s $4,166 a month ( and I can only use 33% of that for a house, my budget is $1,375, including taxes, insurance, and maintenance which is 5% a year)
– Using my calculator I can afford a $278k property

Rule Two:
– Down payment is going to 20%
– Which Is around $55,600 and don’t forget my closing cost could be around 5% which an additional $13,900 ( for a total cost $69,500)
– This means even if I save 50% of my income a year, it would still take me almost 3 years to save up for it )

Tip: this is a long time. And it think that’s why to save makes it 25% of your income, with a 20% down payment ( because then the downpayment is a lot less: the same example with dave formula would be )
– Use 25% of your income that’s a budget of $1,041 a month
– Which gives us a $142k home with a down payment of $28,000
– Which is a lot easier to save for on that income

Third Rule:
– 30-year mortgage: the current way means you have to save up for a long period of time for a down payment of around 3 years ( but at least you a nicer house, and it’s all about sacrifice )
– 15-year mortgage the correct way, means you take a big house cut but can get a house a lot faster and be done with it a lot faster
– However if you don’t follow the rules, you just end up with a trap.

Tip: theirs also an alternative, you buy a house that you can afford with a 15-year mortgage but get it with a 30-year mortgage so you have flexibility. But flexibility also leads to not following the rules

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*Some of the links and other products that appear on this video are from companies in which Tommy Bryson will earn an affiliate commission or referral bonus. Tommy Bryson is part of an affiliate network and receives compensation for sending traffic to partner sites. The content in this video is accurate as of the posting date. Some of the offers mentioned may no longer be available. I’m an Accountant but I’m not your Accountant, always review information with your Accountant/CPA and your Financial Advisor.

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