I’m about five years into a 30 year mortgage, three years into a daughter and one year into a son. A recent budget refresh led me to to revisit old choices. The fact that I took out a 30-year rather than 15-year mortgage five years ago was hugely important for reasons I didn’t fully anticipate at the time.
I’ll get into it more, but the tl;dr is young couples should value flexibility as much as long-horizon economizing when making big-ticket commitments.
Let it be said: the 15-year mortgage is almost always the better financial choice, if you are a money-bot. You may get a slightly lower interest rate. You obviously pay much less interest over the life of the loan. I’m not here to argue with any of that, because it is all true.
And yet.
The monthly P&I payment on a 15-year mortgage is 50-60% higher than that on a 30-year mortgage (assuming an interest rate in the neighborhood of 4%). For a $200k mortgage, that’s a difference of about $500/month. And for many people, that 15-year window coincides with peak childbearing years.
In the last three years I have been on maternity leave twice, for a total of 22 unpaid weeks (thanks, America!). My husband suffered an injury at work that left him on workman’s comp for several months. Did you know that workman’s comp only pays 2/3 of your wages? I do now!
And dear god, daycare. I live in a relatively low COL part of the country, but I’m still spending nearly $2k/month so my children can go to the daycare with the big playground, good food, and nice teachers rather than the $1.2k/month daycare where they watch tv and bite each other.
But this is a happy story of budgeting gone right. Although our emergency fund is almost depleted, it got us through three work interruptions. I recently decreased my workload to a 30-hour week, because that is a choice that makes sense for our priorities right now. It would not have been possible, however, to weather the last three years and enjoy this work/life balance with quality daycare, had I signed that 15-year mortgage. Our budget works, but just barely. That ~$500/month commitment would have forced me to either work more hours or sacrifice daycare quality. It’s a choice I’m very glad not to make.
Before kids, I paid extra towards principle, such that my 30-year mortgage is now more like a 28-year mortgage. I intend to do the same once daycare is over and I can comfortably work more hours. It’s an option, but it’s voluntary, and can be dialed up or down in concert with life’s other demands.
As a late-20s DINK, I could have built a totally rational case for the 15-year mortgage. Mid-30s me is very glad I didn’t.
YMMV, obviously. However I see an awful lot of advice here that seems more enamoured with spreadsheet satisfaction than the vagarities of life. Some of y’all may appreciate the lived counterpoint.
Submitted February 08, 2018 at 12:58PM by stability_analysis http://ift.tt/2BLSB2J
