TheBogleWay wrote: ↑Wed Jan 31, 2018 3:27 am

nordsteve wrote: ↑Wed Jan 31, 2018 12:05 am

When I was younger, I had a 30 year mortgage and paid it at a 15 year rate. Working in tech, with its booms and busts, I wanted the option to pay at the lower rate.

Same outcome can be achieved if you set aside sufficient cash in your emergency fund to cover the difference. Back then all of my savings were in pretax, so couldn't take that approach.

There's a person in here above that actually claims that's not the case. I'd say the main reason is because you'll pay a higher interest rate for the 30 year loan vs 15.

I wasn't very clear in my original post.

Much of your thinking is around optimizing for the "happy path" scenario. My goal at the time was to optimize for wealth increase, but one of my subgoals was to "minimize the chance that job loss would cause me to lose our house," and I was willing to pay a bit more over the term of the loan to do so.

Suppose for the purposes of discussion that you wanted to be resilient to 2 years without work. Let's analyze how the difference in mortgage payments can contribute to that goal.

Consider a $1,000,000 mortgage with these two scenarios:

30 years -- 4.2% - monthly $4890

15 years -- 3.7% -- monthly $7247

Monthly difference = $2357

One approach is to take a 30 year mortgage, but make payments at the $7247 rate. At any point, you can fall back to the lower 30 year payments with no penalty.

Another approach is to take the 15 year mortgage, but increase your emergency fund by $2357 * 12 * 2 = $56,568. Then you have the cash on hand to cover for two years of the difference in payments. The cash buffer equalizes the cash flow of the two mortgages.

Costs:

30 year mortgage -- 15 year amortization -- interest of $368,192

15 year mortgage -- 15 year amortization -- interest of $304,539

Cost difference between the two approaches: about $4000 a year. Only you can answer whether that's worth it for you. My mortgage at the time was close to an order of magnitude smaller than yours, and interest rates were more than 2x today's rates.

Based on your post, I'm assuming you're young and didn't live through the 2008 recession. Here's a scenario to test your plan against:

1. There's a recession.

2. Housing prices decline to 2/3 of current prices, putting you in negative equity, like this:

https://fred.stlouisfed.org/series/SEXRNSA/ Maybe this puts you in negative equity.

3. Equity prices decline by 50% (like in 2008)

4. One or both of you lose your job for 6 months or longer

Finally, you need to make an allowance for costs related to home ownership. Since I bought my house 15 years ago, I've bought a new boiler, new soffit and fascia, replaced several windows, new split AC units, and new roof. Coming up is a new driveway and replacing the patio.