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The Spend | Mortgage Payments
When buying a new home, you have a choice in financing options. You can choose to make payments for 15 years or for 30 years. Let's say you decide to go with 15 years, cutting your repayment period by half while paying a little more per month.
After 15 years, you payoff your mortgage, host a badass mortgage burning party, and breathe a well deserved sigh of relief because you're completely debt free and a major step closer to a comfy retirement.
Let's see what that retirement looks like by shortening up your mortgage from the typical 30 years to only 15. Based on today's 15-year mortgage rates, you can get a loan for $100,000 at a rate of 2.80% that results in 180 payments of $410.89 per month or $4,930.68 per year.
The Opportunity | Retirement
Once your mortgage is paid in full, you'll then be able to invest that money for retirement. You'll have a full 15 years to do this without breaking a sweat. After all, you've been paying this amount of money to a mortgage company for a decade and a half.
When you decide to do this, you'll end up saving a total of $10,577.83 per year thanks to $2,121.21 in tax breaks, $3,525.94 in employer matching, and that $4,930.68 that you were paying to the bank instead of yourself.
The Long-term Benefit | 30-year Value
Assuming you invest the retirement savings equivalent of your former mortgage payment for the 15 years after you paid off your mortgage, you'd end up with $331,850.49 added to your retirement nest egg.
Considering that's $331,850.49 per $100,000 you borrow, that's a HUGE sum of money, so let's use HUGE letters - THREE HUNDRED THIRTY-ONE THOUSAND EIGHT HUNDRED FIFTY DOLLARS AND FORTY-NINE CENTS.
15 Years > 30 Years
A fifteen year mortgage is a great, great thing and it beats the pants off its 30-year cousin. You'll own your home faster, get out of debt 15 years earlier, reduce the chance of buying too much house, have 15 years afterwards to save for retirement, pay a lower interest rate and less interest, and on and on.
When you go home shopping, do so with a 15-year fixed mortgage in mind, and set yourself up to reap the benefits over the long run.
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