I read an interesting post that really got me thinking today. It was written by a great blogger nicknamed Money Hawk, if you have never read his blog I implore you to check it out. He wrote a great post titled “Kick Financial Ass With a 15 Year Fixed Mortgage.” His basic premise is simply stated as follows,

The standard mortgage in the United States is a 30 year fixed rate mortgage. The mortgages that got people (as well as the banks and the government) into trouble were adjustable rate mortgages. The best mortgage is the 15 year fixed rate mortgage; the one people pay the least attention to.

I have stated this before, but I work for a high end wealth management firm on Long Island.  Specifically, my job is back office planning creating complex estate and gifting plans, insurance planning, and a “little of this and a little that.”  I deal with all financial planners’ problems, but for the most part the net worth that crosses my desk is in  the range of $2,000,000 and $7,000,000.   These people usually have two things in common:

  • Small Business Owners
  • Personal Residence has no mortgage

As such, let me make myself abundantly clear – I am all for paying off your mortgage EARLY.  The thought of having “an extra” $1,000 to $6,000 a month is mind boggling and to get that earlier the better.  This post is merely discussing making that choice between 2 mortgage products and benefits and disadvantages to each one.

Comparing Mortgages Calculations

I made a basic spreadsheet that will provide us with some observations:

Mortgage TypeInterest RateMonthly Payment
15 Year5.40%$2,841
30 Year5.70%$2,031
Monthly Difference$810
Capital Gains Tax Rate20%
Gross Investment Returns6.50%
Net Investment Returns5.200%
Total Interest Paid$177,486
Total Gains at 12/2023$220,157.87
Total Gains at 6/2024$230,857.30

Some observations:

  • By putting the difference towards the mortgage you pay it off in 15.5 months, paying an extra $16,000 or so.
  • By putting the difference in a taxable account using our assumptions you will have over $220,000 (most of which could be used to pay off a huge chunk if not all of the remaining mortgage with cash)
  • You will have the freedom of lowering your payment if something were to occur (this is probably a con, but could be a plus if you are disabled or someone gets pregnant).
  • You could use that $800 to fund another business which could turn into another stream of income.
  • You could waste the money lol

I prefer options and I think this gives me the most! Any counter arguments?