15 or 30 Year Rate?
Which is better deal: 15- or 30-year mortgage?
Q: My wife and I are in the process of refinancing our 30-year fixed-rate mortgage to eliminate private mortgage insurance payments. This is our dream house, and we want to live in it forever. We also are 50% owners of a duplex with my brother and we receive $3,400 per month in rent. My questions: Should I go with a 15- or 30-year mortgage? Also, would it be best if I bought out my brother and concentrated on paying down the rental property for a possible $3,400 positive cash flow, which could offset my mortgage? — John Pengelly, Calif.
A: Jack Guttentag — president at Mortgage Professor, a multi-lender site where consumers can shop for the best price — recommends the 15-year mortgage. “The price is better, and you can now afford the higher payment while you are still working,” he says.
Guttentag also recommends you consider adding to your payments so that “the balance is gone by the time you retire.” To see how making extra payments will shorten your loan, check Mortgage Professor's mortgage calculator.
Buying out your brother might be a good investment, or it might not be, says Guttentag. “It does contradict one general investment rule, however, which is that as you get older you should shift your portfolio into more diversified areas,” he says.
And given that your plan is to age in place, Guttentag recommends that you take out a HECM reverse mortgage as soon as you hit 62, but not draw on it. “The credit line you get will grow at the mortgage rate and will be a great source of financial comfort in later years,” he says. “You will draw on it as needed, and if it is never needed, the equity will pass to your estate.”
Robert Powell is editor of Retirement Weekly, contributes regularly to USA TODAY, The Wall Street Journal and MarketWatch. Got questions about money? Email firstname.lastname@example.org.