Hello, everyone and welcome back to a new video now, because I'm a mortgage lender in Arizona. I get this question all the time which is smarter or which is better for my specific situation. Is it a 15-year mortgage or a 30-year mortgage, and my answer is always the same: it's neither just pay cash, I'm just messing around, though we all wish we can buy homes in cash, but the reality of most of us can't only nineteen percent of homes in 2018 were actually bought with cash and of that percentage majority of those were investors anyway, so it's incredibly rare for the average person to actually buy a home cash plus, even if you can buy a home cash, it's usually smarter to finance it instead and take that Money to actually invest in it, so you can get some higher returns, but that's for another video in today's video. I want to talk about the differences, the pros and cons, the good, the bad all that good stuff in the great debate of which mortgage is better a 15 year or a 30 year and first off.

You should subscribe to this channel, just kind of saying, but anyway, which is better well first off both of them serve the exact same purpose, to eventually pay your home off now. The way it's actually done is what we are going to be discussing today and with a topic like this, I mean it's like religion or politics, no matter what I say, I'm probably going to be pissing off a lot of people, but let's just start with the Pros and cons of each and then I will tell you, which is the superior option. So, let's start with the 15-year mortgage. Okay, the most blatant difference is the fact that you'll be paying your home off in 15 years, which is much shorter than the bigger brother of the 30 year.

Right now, if you're working with a lender that doesn't absolutely screw you into oblivion, then you'll get a much better interest rate with a 15-year mortgage versus a 30-year mortgage. Okay, typically, you get at least half a percent, if not a little bit more and the reason being is because the loan is just a lot less riskier. Okay, much less can happen in 15 years, say like lose a job. I don't know having unexpected medical payments or whatever, then what can happen in 30 years? So not only are you paying much less interest over the life of the loan because your rate is lower, but also your term is lower the biggest factor in how much money you pay in interest on a home loan is not your rate.

I don't know how many times I've seen this. The most money you spend in interest is not because your rate, it's because of your term. For example, let's say I bought a half a million dollar home and my interest rate was seven percent on a 15-year mortgage over the course of those 15 years. I'd be paying three hundred and eight thousand nine hundred and forty five dollars and seventy one cents.

Now, on the flip side, let's say I bought that same half a million dollar home and my interest rate was 4 % on a 30-year mortgage. I'd still be paying three hundred and fifty nine thousand three hundred and forty six dollars and forty cents in interest over the course of that loan. This is why the biggest factor in determining how much money you are going to be paying in interest over the course. Your loan is the term okay, it's a term, it's not the rate, which is really what pisses me off.

When people always complain about their interest rate, they say: oh man, a 3.75 interest rate, isn't good enough. I need a 3.5, it's like no. You just need to pay your home off quicker and you'll save tons of money, so bringing us back to the 15 year mortgage pros. You can see that you get the best of both worlds.

Here, okay, you get a lower rate and a lower term, which means you'll be saving hundreds of thousands of dollars in comparison. So to put things in a perspective on a two hundred and fifty thousand dollar home you'd save around a hundred and fifty thousand dollars in interest with a 15-year mortgage versus a 30-year mortgage. So we've got a smaller interest rate, lower term and here's a new one, faster principle pay down, which basically means you are pretty much building equity in your home, much faster, the faster you pay down, equity, the less you spend in interest and the more cash you Can get in your pocket when you go to sell your home before the mortgage is paid off? Building equity in your home is always the biggest goal. Okay, so with the 15-year mortgage you get a better rate, better term, better pay down.

So it's essentially looking like the clear champion here, but hold up pump the brakes. We got to talk about the cons of the 15-year mortgage or better, yet the con there's only one. It's the fact that your payments will be significantly higher, which sounds bad right on the service, but it's much worse, you think now, when your payments are higher, that means you're gon na have much less cashflow. What's cash flow cash flow is essentially how much money you get into your pocket each month, so lower cash flow sucks.

We want millions of dollars hitting our pockets every single month, but the real reason it sucks is, if you bought this property for an investment property. Your monthly cash flow is gon na, be much lower, so you're barely gon na be making anything if anything at all from having tenants, actually live in your investment property or if you actually bought the home to live in it. This means that your debt to income ratio is gon na be much higher because your monthly payments are higher, and I don't want to bog this video down with like lending qualifications and debt-to-income detail like all this stuff, what it means, but essentially just know that a Higher DTI higher debt to income ratio essentially means you can qualify for a less expensive home. So, with a higher monthly payment, your debt to income ratio is going to go up, which means the max purchase price you can.

Actually, you know buy a home at is gon na be much lower. Essentially, you have to stay below a certain DTI percentage to qualify for a mortgage, so let's use the example of 50 % DTI. That means that if you make $ 4,000 a month, you can only be spending $ 2,000 a month and you know like reoccurring payments like you know: car payments, credit card suit loans, all that kind of stuff and your new mortgage. So if your mortgage payments are higher with a 15-year mortgage, that means your debt to income ratio goes up, which means to stay under a specific threshold of like the 50 % mark.

You need to either pay off other debt entirely or you have to lower the purchase price of the home you want to buy. This is a huge deal breaker for like 90 % of the people I work with, who are deciding whether fifteen year or a thirty year. So let's go back to an example, let's say two hundred and fifty thousand dollar home on a 15-year mortgage. Your monthly payments are gon na be $ 600 more on the fifteen year versus the thirty year.

That's a significant impact in the determining factor when you're deciding between a fifteen year in a 30-year loan, and another thing I want to put in perspective here - is: if your maxing, your GTI out like if you're really pushing the threshold of here's, the max, I can Afford - and this is the home I'm gon na - buy that's not a very healthy lifestyle. Okay, you don't want to be maxing out your DTI cuz. That means that if anything goes wrong, if your hours get cut at work, if you somehow take a a cut in salary, you're gon na be really struggling financially. I personally recommend and honestly what I do is.

I live a super, simple, simple lifestyle. I live way below my means. I save way more than I probably should and in turn I love a very stress-free life. I don't really have to worry about making sure I have the money to pay the bills because I'll have a very simple life.

I don't spend more than I probably should, but all right, that's the pros and cons of the 15-year mortgage. Now, let's take a look at its bigger brother, the 30-year mortgage well right off the bat, as you can probably guess. Your monthly payment is much lower again by about $ 600 a month on a two hundred and fifty thousand dollar home. So what does this mean? Well, our cash flow is going to be significantly higher than the 15-year mortgage right, we're on the flip side.

Now so we've got more money coming into our pocket that we are not spending on our mortgage. So if that means that we've got an investment property, we're actually making money on this investment property now, and not only that, but we should be making a lot more versus a 15-year mortgage. So from an investor's standpoint, you could take that extra $ 600 a month that you're basically making from this by going to 30-year out, and you can invest that into some higher yielding accounts stocks. Whatever you want to do you end up making a lot more money than if you were to aggressively pay down that 15-year loan, or instead of investing that $ 600 every month, you could just blow it out of casino, basically, the same thing as investing right anyway, With a lowered payment, that means that you can essentially buy a nicer or more expensive home, so that's a plus for most people and is the biggest turn-on for most people plus you'd also probably make more money on it in the long run because, let's say home, Prices go up 1 % every single year if you bought a $ 250,000 home.

One percent of 250 K is much lower than 1 % of $ 300,000. So again, you're gon na be building equity slower, but you own a more expensive home. So, the more that home prices go up, the bigger that number is, I don't want to get too much in the weeds, but you'd make a little bit extra. But of course nothing good in this world happens without some cons or something that's bad.

So the downside to a 30-year mortgage is the fact that you pay the home up way slower, which means you pay principle off way slower, which ultimately means you build equity in the home super slow, nobody likes moving slow, let's be real. Ultimately, this means that you're gon na be paying much more interest over the life of your mortgage. You're gon na feel it in the rate you're gon na feel it in the term. It hurts but remember your interest rate will be about half a percent higher on a 30-year mortgage versus of 15 and remember the biggest determining factor and the amount of interest you pay is the terminal loan.

Those 30 years hurt. So on that $ 250,000 home price. You're paying hundreds of thousands of dollars more in interest, mainly due to the term. It's no fun.

Let's, let's be honest, so here's the pros and cons, matched up side by side with two mortgages right looks like the 15-year is a clear winner right. If you can afford the cost right well, not quite just yet, I want to break this down even further. Here's what it looks like with an actual home price again it looks like the 15-year is a clear champ right. If you have the money well, I want to take a second to play devil's advocate here.

If I say the 15-year mortgage is king, everyone's gon na say: whoa whoa whoa hold up Shaun. If you made three extra payments and year on your mortgage, you'd be totally fine or an even better one, as people say well hold on Shawn, you didn't take into account for inflation, and I need to go check my math and blah blah blah. You know Shawn, because a dollar spent today is only worth fifty four cents in 30 years, because the two percent inflation rule and yeah you're 100 percent - correct - I can't argue with the math I mean a dollar spent today - is worth a lot less down the line. So, if you're holding off on paying your debts until later, essentially you are paying less, but that's also with no interest and then on the flip side.

If I say the 30-year is king, everyone's gon na be like woah Shawn. What are you talking about? You're, never gon na have a sense of security and wealth if you're always making payments on your mortgage. What do you think Eman or my favorite argument - is the fact that we'll hold on Shawn? You can buy two houses with a 15-year mortgage for the price of one house on a 30-year mortgage, pretty crazy to think about that statement. Honestly, but that's besides the fact, if you want my answer to this god-awful debate, it's the fact that you need to know thyself and you need to know what's in your best interest, if you're super conscious in what you're investing in - and you are confident you can Get a five to seven percent return on the money.

You invest that you save by getting a thirty year mortgage versus a 15 year mortgage every single month by all means prove us all wrong. Go do that make yourself some money, but I will be the first one to say that is incredibly hard to do and you have to say super super dedicated over the course of 30 years. I'm not saying it doesn't work. It does it's just incredibly hard to make happen and the average person usually doesn't stick to it.

On the flip side, if you don't know how to properly invest your money, get that 5 to 7 percent return over the course of all this time and have the will and dedication to actually do that. Then I recommend just getting a 15 year mortgage. It take the headache and the hassle out of everything. Essentially, your money is just being invested in your home.

You don't have to worry about anything. It's 1 payments, we're about investing it's so much easier. Will it be the best financial outcome? No, you could always get a better outcome net. My absolute favorite answer to this great 15 year vs.

30 year debate at law was 1 pay cash, but to get yourself set up with a specific mortgage program that takes care of the hassle for you. There are programs that exists actually pay your home off in five to ten years and there honestly isn't even any payment involved with it. It's pretty incredible stuff, I know my mind, was blown. I sat through the super long training to actually certified to do.

One of these specific loans, because it is very rare, most lenders - can't offer it to you. It's pretty incredible stuff. I made a video on it actually down below. If you wan na learn more about it, it is very unique.

It's very cool if you're actually serious about paying your home off as soon as possible. This program literally, does it for you. But after watching this video, I want to know your specific opinion, which is king. Is it the 15 year the 30 year? Let me know down below I'd, be definitely interested here, because this debate is always super entertaining to read comments on any mortgage help or you're trying to figure out what's best specifically for you, then, head on over to lending strong, Malka calm again, i'm an arizona mortgage Guy i'd love to help you out, it can get a little bit confusing when you're trying to decide which program is best for you.

So I get it trust me, but hopefully you enjoyed the video and learn something from it. I spent tons of time on this. So if you could, like the video, I'd, really appreciate that also subscribe, if you're new around here, I'm always doing cool videos like this. If you've got a great topic that you want me to cover, let me know down below as well.

Ultimately, I love dropping my two cents on pretty much any topic. So just let me know, while I'm plugging everything might as well go check me out on all my social media channels at shaun mal coo, but that is gon na do it for today. Hopefully you did enjoy the video learn, something new and until next time I will see you in the next video.