PSA: Why you SHOULDN’T get a 15-year Mortgage
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- Опубліковано 22 лис 2018
- Here’s why I don’t recommend getting a 15 year mortgage vs a 30 year mortgage, and how taking out a longer term loan could leave you with WAY more money…enjoy! Add me on Snapchat/Instagram: GPStephan
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here’s where I’m getting at, summed up as simply put as possible..if you don’t watch anything in the video, at least read this:
First of all, there’s NOTHING stopping you from paying down a 30-year mortgage early if you want to. If you get a 30 year loan, you can pay it off whenever you want. If you decide you want to pay it off in 15 years, just increase your monthly payment and pay it off sooner.
What a 30 year loan gives you that a 15-year loan doesn’t is FLEXIBILITY. It gives you the ability, if you want to, to pay it off over 30 years and invest elsewhere…or you can pay it off in 5 years, it doesn’t matter. The advantage to doing this is that it gives you more safety and leeway with your payments.
Also, home equity isn’t really going to be making you money…as unpopular as that is to say, when you have your money tied up in a property, it’s not money that’s easily accessible to invest elsewhere at a higher return. In order to get that money, you either need to sell the property - or do a cash-out refinance, pulling out your money, but then taking out a brand new loan and starting all of this again.
With a 30 year loan, you’ll have access to your money as you need it because you’re paying LESS money into an illiquid investment like real estate, and like my last example, you’ll have more free cashflow available to you at the end of the month.
And arguably, the difference in loan amounts between 15 years and 30 years is really such a small number after you account for write offs and inflation…that you may as well just take the 30 year for additional flexibility, allowing you to re-invest the money at a higher return.
And let me just say this for all the Dave Ramsey followers who live by his advice of the 15 year mortgage:
The IDEAL scenario here is that if you’re getting a home for yourself to live in, buy something where you could afford the 15-year mortgage, but take a 30 year for additional flexibility. If you’re getting a house where you can ONLY afford a 30 year house payment, I’d argue that you should lower your price range.
For an investment property, always take the 30 year…cash flow is king, not equity, so you could always go with the option that gives you the greatest amount of write offs…which is the 30 year…and the most cash flow…which is also the 30 year.
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Graham, great video topic! Have you considered making a video that offers advice to individuals who are looking to purchase their first home perhaps from the perspective of an experienced realtor like yourself? I think that would be very valuable for lots of people. Keep up the great work.
what he never tells you is that 15 years with no mortgage for the 15 year loan you get 15 years of all out money no mortgage no interest nothing
which in the after math you make way more money
@@JohnnyGuitarRocks That's a REALLY solid idea, I've made videos before when buying a property and incorporated some of my strategies in them, but never entirely from the perspective of an agent. I'll definitely do this!
@@IMORTALGIANT That was literally my example starting around 4 minutes in...and no, you'd - on average - end up with more money investing the difference than being mortgage free after 15 years.
The best thing about a 30 year loan is that your chances of being dead before you pay it off are much higher.
Lol
🤣🤣🤣
Not when you're buying homes in your 20s lol
@@danadamczyk3295 No, even if you're 25 you would have a much higher chance of dying by 55 than dying before age 40. 15 extra years with chances to die!
😂😂😂😂😂😂
We had a 10 year loan on our first house, paid off in 6. Equity from that first self built house allowed us to self build the current one for cash, so we haven't had a mortgage since 1981. You'd be AMAZED what not paying 39 years of interest to a bank will do for your financial picture !
Did u get a equity line of credit? Can u explain more in detail your strategy! 39 years of no mortgage! Wow! Amazing!
@@dejabuechs1683 Saved up $10,000 during our first 4 years married.....lived on one income, saved the other. Doesn't seem like a lot until you consider this was 1971-75....I made about 800/mo at the time (US Army E-5) and wife made about 1/2 that working various min wage jobs.
So we came to our present location to go to college, wanted to build. Took our 10k, and borrowed another 10k from bank, and build our first house....small, 2bd, 1 bath ranch. Paid the loan off in 5yrs, sold the house 8yrs later for 50k (had probably put another 5-6k in it over the 8yrs)
Bought 70ac undeveloped property for 65k....owner financed the land, we used the 50k from the first house to build a much larger, nicer house on the farm for cash. Paid the 65k land off in 7 years....which was a real trick for 2 school teachers making 18k/yr combined income !
Current value of house and land: $750k
The TRICK is DIY on labor. Never built a house when we did the first one, but were determined.
That is amazing. It all depends on locaiton where you live of course but if I had chance to buy a detached house that I can afford pay off in 6years I would do it in heartbeat.
Wow! Well done my friend! That is unthinkable to me in my city today.
Sadly I don't think this scenario exists for most in the modern age. You aren't touching even a fixer-upper where I live for less than 100 grand and by fixer-upper I mean a shack.
A wise man once said “if you get a loan from a bank you’ll be paying it off for 30 years, if you rob a bank you’ll be out in 10”
After booty bandits charges you their interest ?
@@myev2421 racist much ?
He’s just being funny
You'll be out in 10 plus it will take another 40 years to pay it back and reset your credit.
lol, u got me on that one
Dave Ramsey's advice makes perfect sense if you're not trying to be a real estate investor. His core audience is just regular people wanting to be debt free.
Don't get it twisted man. Being debt free like how Dave Ramsey suggests will allow you to have more money to invest in real estate. However, buying a house through cash is an extreme move and is not convenient for everyone. 30 year loans is more suitable for the average person. Mortgages in general do "burn" a lot of money because of that high interest rate.
@@RoyceTVx I believe in fairness to Dave that he usually qualifies his "no debt" stance as debt other than a mortgage. He's fine with people having mortgages since it's pretty much required to own a house.
Dremin2009 True. Yeah seems like Dave is okay with mortgages cause its pretty much impossible to buy a house in cash for most people. In the end though, having a mortgage is fine as long as you have positive cash flow.
not necessarily RE investors but just normal investors. Like Graham says, if you're more likely to blow the extra money on boats and hoes, then go for the 15 year. But if you are just an average joe/jane who is good at saving and likes to invest, even simple stuff like robo-investing or ETFs or whatever, go for the 30. I have a 30 year mortgage because I have a secondary unit so my tenant is able to cover about 75% of my mortgage payments, so most of my monthly living costs are bills, food, maintenance, etc.
His advice literally falls down to "Dont spend money. pls gimme 100 bucks for a seat in one of my seminars."
100% agree Graham. You can pay down the principle anytime while still having a lower monthly payment with the 30-year mortgage. Just because one takes out a 30 year mortgage doesn't mean they have to take the full 30 years to pay it down. Agree with you completely.
I made this exact video about a year ago. 15 year vs 30 year mortgage. The issue is that people aren't disciplined enough to invest the difference!!
True :(
I agree. I'm doing well enough to pay enough to may off my house in 6 years from now and still be able to fully fund my investment. The only thing I'm debating on is should I pause my investing which is about 11k a year and send that towards my payoff and possibly pay it off in half that time or keep on as I'm going. If I choose the latter I might be missing out on compound interest
@whispers from my arse say that's partially why I'm doing it
Exactly, plus what he fails to realize is that a mortgage is RISK. If you go into foreclosure you lose EVERYTHING. If money gets tight while investing in mutual funds etc, you simply stop paying into them and keep the investment portfolio. Half the battle of managing finances is managing RISK. If you need the so called flexibility of the 30 year you probably are not ready to be buying a home. Buy a 15 year with a payment of 25-30% of your monthly income and set other money aside to invest. Not every investment is supposed to move at the same pace, and it is wise to have different types of investments with different levels of aggressiveness. Real estate is not to be treated like stocks. Its going to appreciate differently so dont play the what if game. Home buying is about getting the lowest interest possible and faithfully paying it down till you own the home and can sigh relief. If you get a 30 year for the sense of security, don't invest the extra but use it to pay off the home faster!
@@GrahamStephan True but not all there is to it. Paying off the loan faster also protects you against issues that could make you no longer able to pay the loan like severe illness, an accident, or losing your job. That is an aspect you and others giving investment advice forget to often.
My parents: Debt is bad don't use too much.
Every finance video: Go into massive debt, use it all.
Well I was at seminar with a financial specialist, who said pretty much the same things Graham did. The thing is, real estate loans are the cheapest loans you can get, only your parents will give you a cheaper loan and it is quite easy to make more returns on relatively safe investments than the interest rate (the average on my investments make 8-9%, whereas my mortgage is 1.89% (I got a very good rate, because I bought well below my financial capabilities, so the bank saw me as a safe investment)). The dude also said it is the only loan you should ever take with the possible exception of a car loan IF the car is necessary for you to make money (impossible to commute to work without one, you work as an uber driver etc.). In short, don't go into massive debt, go into smart debt for which you can easily afford the monthly payments and where the interest rate is lower than what you can make with not overtly risky investments.
Everything is good and well until you're heavily leveraged, a pandemic hits, and the government tells your tenants they don't have to pay rent.
lol
@@chrisknoblock lol right!
Chris Knoblock you mean the democratic government rulers say that.
I love this logic. Honestly I was on the 15yr train before watching, probably because I always considered the rest of the money blowed instead of invested, but if you don't blow it, this is truly logically far superior.
Dave Ramsey just left the group chat...
echtube LOL... I've watched Dave Ramsey's videos and while he has some good advice about not having high credit card debt or auto loans, his ideas of having a 15 year mortgage, paying cash for cars, and not using credit cards aren't very flexible. I believe Dave said your house payment shouldn't be more than 25% of your take home pay. Most people will have a much higher debt to income ratio in housing markets areas such as San Francisco Bay Area, LA, NYC. Telling someone to move to a city or state with a lower cost of living isn't always feasible due to family and jobs. I lived in a low cost area of the U.S. with a lower salary job and moved to California for a much better job. Many people suggested that I sell my house but I decided to rent out my house and I'm making a nice profit from the rental income, even after my property manager fee. The Rich Dad Poor Dad book changed the way I look at finances and using good debt (mortgage) to leverage income. My house is very inexpensive with a low interest rate and as I pay it down, I can raise the rent each year or two and I'll have a high profit once it's paid off. I'm planning to buy a home as a primary residence and if I leave California, rent that property out. I would always go with a 30 year mortgage and pay extra on it if possible - that way I'm not locked into a higher payment with a 15 year mortgage.
@bro ha I don't disagree with his statement about buying a new car. I bought a new car which had terrible resale value before and I won't ever do that again. There are used cars that cost $15,000 (I'm talking about a Honda or Toyota, not a BMW or Mercedes) with low miles. Pre-owned certified cars by the dealer are still under warranty because it's under 100,000 miles. Some of us don't want to buy a car with over 100,000 miles on it even if it costs $4000 - the possible maintenance costs if the transmission or engine etc starts falling apart soon after you buy the car could be very expensive and time consuming.
Lmbo ,,,
@@rachels7252 plenty of property in Texas you can buy....and nice homes too...
@@rachels7252 exactly....
Everyone I know has a 30 year mortgage because that is all they could afford given the homes they chose. My wife and I took a different path. We purchased a house we could easily afford, took a 15 year mortgage and paid it off in 9 years. Many of our friends had expressed dismay at our modest home, until we paid it off and do whatever we want whenever we want. We invest 30% of our income and travel constantly. We will soon ramp up our investment level again. We will actually have more money in retirement than we have now, which is good, we have lots to do.
Your 30 year method could work with highly disciplined people, but I don't know any. Boats and hoes seems to be the way most go.
"Live today like no one else does so you can live tomorrow like no one else can." Hmmm, seems to be good advice.
I know this is two months late, but ohwell...
What you did was smart! Too many people want to have the best they can "afford", however they never seem to look at the future (I think this happens alot due to the novelty of a big purchase).
Like he has said in videos before, the rich stay rich because they live like they're poor and the poor stay poor because they live like they're rich.
"Boats and hoes"
the smartest move is different for different people
You just said because the homes the chose and you and your wife picked a home that you could afford...I'm sure if you pick a home that was cheaper or something in your means go for the 15 knowing all of your money is going towards your loan and maybe throw extra money...I've been hearing lately don't get a 30 year mortgage...
@Pete Coventry if you own the house via a limited company then there is virtually 0 inheritance tax plus the interest from a bank is lower than inflation so your money is worth less and less every year where you can get 20% plus interest in property from rent and the capital appreciation will more likely be inline with inflation someone if somebody manages the property's and you systemise the business it's passive income
@Pete Coventry nice living the dream i don't think i read all of your comment before commenting what would you do if you had 15k fair credit not good and hated your job the 15k took years to save and rent to rent is to risky a lease option agreement seems the best bet but its finding the deal any suggestions
Your businesses will make you rich but your investments will make you wealthy. We all deserve to be rich and have financial freedom. I pray everyone here becomes extremely successful.
You're right, the importance of multiple streams of income, unfortunately having a job doesn't mean financial freedom or security.
Speaking of been successful. I know I'm blessed if not I wouldn't have met someone spectacular as Anna s Wilson.
Same here it's been four months now I started trading with her, and it's been a good experience.
@@kingbush9328 I truly agree with you on that.
Anna Wilson has changed my financial status for the best, all thanks to my uncle who introduced me to her.
I am also in Real Estate and in Finance, and what he is saying is good as long as you invest your money right and get higher returns from that extra cash
Correct, and I believe at best maybe 3% of people will follow that advice long term, especially if they have kids. Not trashing the video but that's reality.
Homes are liabilities, rental properties are assets [Rich Dad Poor Dad]. Leveraging debt works brilliantly in business, but terribly in personal finance [because of human emotion]. Can we end the argument over which which strategy is superior, leveraging vs. Dave Ramsey, by separating financial advice into two different sub categories: Personal Finance and Business Finance. They are not equal and should never be treated as such. Even an individual that goes into business alone, such as when buying real estate with rentals in mind, is considered a sole proprietor, but this is not the case when an individual buys a home exclusively to live in, both in the eyes of the legal system and in human psychology.
The last two minutes of this video I think are the most critical and I hope that everyone who disliked and unsubed watched until the end before doing so rather than just clicking one after watching for only three minutes. Thank you for spreading factual and in-depth data, Graham! I appreciate your effort and time spent doing extra work for this video!
Jesse I agree Jesse! I built a house in 2017, lived and furnished it for 6 months then turned it into a Vacation Rental, I paid 14k towards the loan personal debt, and it’ll make 22k in business revenue... (your exact mentions)
That’s real proof of your mentions
@@nicholasvarro7382 Thanks Nicholas! And congratulations on your business! 8k in profits for one property is wonderful!
Joseph Greene if it wasn’t for RDPD I wouldn’t be making money while I sleep. I challenge you to provide something better than that hot shot!
@@nicholasvarro7382 100% with you! It changed my life as well.
I can't believe how dense some people can be. If you choose the 30yr option you can still pay it off early. The 30yr provides flexibility so that you're not bound to the extra high a payment.
Agreed!!
You can always pay more to principle, but paying a 15yr monthly payment on a 30yr loan is a lot less principle than 15yr payment in a 15yr loan. You know, all of this goes out the window when your priorities are to owe less interest and get out of debt quickly, or can afford a 15yr loan. And subtracting 2pct inflation to lower the effective interest rate is deceitful. That's not correct in any sense..accounting, mathematically, or real in any sense whatsoever
This is exactly what I was thinking. Why does this not have more likes?
If you want the lower interest rate, you have to commit in advance to the shorter payoff period. Yes, Virginia, there really is a substantial difference between 4.375% and 5.0%. Why agree to a contract that requires you to pay $152,000 more than necessary over the life of the loan? Even if you pay it off early, you're still paying more than if you'd agreed to the less expensive contract to start with. And of course, there are mortgages that have a prepayment penalty so read the fine print.
Exactly
Thanks much. Went to school for accounting and I knew all this, tried to explain to my parents and my brother after college many moons ago but never could get them to see the light of day. Oh well.
Really great explanation! I was set on the 15 year after seeing the interest difference, but I never took into consideration inflation and investments.
My sister-in-law wanted to get a 15 year. I said, “just get 30 and give the payment of a 15 year loan”. She said she needed 15 year loan to be forced to make that payment. Due to a business transaction their loan was paid off by a relative and they didn’t give any payments for almost 3 years...and now they reacquired the loan. And guess what..... they saved $0 in those 3 years and even refinanced for more cash-out. People just don’t listen and wealth does not motivate them a single bit. I stopped feeling sorry for these kind of people.
Jeez..
if you get a 15 year you still pay less over all and get it paid of earlier than paying the same amount as extra yearly.
Dave Ramsey's advice is really good for about 90% of the population who is undisciplined, Graham's advice is good for the other 10% who will spend frugally and invest every cent they can.
I'm thinking also in middle America where normal people could afford the 15 year option it might make sense. Pretty hard in West Coast cities for a middle class person to do the 15 yr loan. Houses where I live are like $700k+
@@rm2kmidi As a retired CPA, trust me when I say that if you can't afford a 15-year, don't go for a 30-year. It doesn't matter where you live, the same principle applies. Mortgages are risky - period. They can be useful assets if you have the expendable income to offset the risk, but not if you're struggling to pay it. That is where the 30-year - or any mortgage, really - will kill you. Over the course of a 30-year mortgage, you will pay between 1.5 - 3 times the current value of the property in combined interest, even MORE if the rate is adjustable. The only way you can make that work for you, rather than against you, is by investing the entirety of the cost difference in a diversified portfolio of stocks, which is most easily done through an actively managed fund. But there are dozens of other good ways to invest the money you save, and that's what this video is for.
Basically, if you want to buy, you need to move. I have absolutely no intention of demoralizing you, but I can guarantee that you will not be able to afford a $700K house under normal circumstances - at least, not while you're living in an area where property is so costly.. and that applies whether you're renting or buying in the area. The cost of living will keep you poor enough that you will never be able to afford it. Those prices are set the way they are because really rich people from other areas want to buy in that area, and that drives up the price - and the price of real estate drives up the price of everything around it. It defines the economic condition of the region.
Really great to see the examples. Thanks for this advice, and cool to see what doing the opposite of what everyone teaches you can accomplish.
I'm watching this for the second time, about a year after I watched it the first time. I think over that time, I've slowly been convinced of the superiority of the 30-year mortgage. Thank you for a better than expected (just cause this is UA-cam) explanation.
Great
Basically, a simpler way of saying is is that you don’t make your money by paying off the mortgage. You make your money by monthly cash flow, and appreciation of the home’s value due to inflation. Lower payments make it easier to cashflow, which can purchase more properties, which will all appreciate greatly due to inflation. Thus rapidly building wealth
60 year mortgages are the best
I'm more of a fan of 100 year mortgages
@@GrahamStephan What about forever mortgages!
@@arifzworld ah the forever mortgage I'm not a fan.
Hahahaha you guys are funny
David Ronin when you rent you don’t own shit and many times you pay more than a mortgage in the same area of town.
I know a few people who've taken the debt path, and I know people who paid the mortgage off asap. I totally agree with what you're saying on the technical analysis, BUUUUUUUUT.... I'm 40 now - and its almost all the people who paid their mortgages off who have the options and the feeling of security/wealth - and the peace of mind that comes from not fearing every up/down swing in property values. There is a mental benefit of having low/zero debt that has worth. Your math is right - not disputing that - but in practice I've just seen it work out differently. I think it might have something to do with the $762.00 going to a new F150 payment instead of being invested at 7% in an index fund. Like everything else in life the best answer to the 15 year vs. 30 year question is 'know thyself.' If you will not execute with discipline as you say Graham, then shouldn't someone just default to paying their debt off as quick as possible?
I am about the same age as you. Agree 100%. Graham is about 10 years younger so I can see how his perspective can be different. One thing I fear is getting shut out of the labor market due to age (not right this second, but it will come). Having a paid off house would make that hurt a lot less.
It's quite simple for me. My own home: 15 years mortgage, My rentals 25 years with 1.8% interest/year. I renovate (i have a construction business) all of my rentals(high appreciation) . I buy private, not via my business. Sell the rentals after 10 years and move on to buy with the profits another 3 rentals, repeat. In Belgium (Europa) we have mortgages at 1-2% year.... Real estate is much expensiver here but loans are almost free if you count the tax benefits like graham. Only difficult thing is that you have to put down minimum 20% of the total costs of the new house + the buying costs and that is another 13%...
The answer is to spend the extra on extras investments, extra principal payments, and emergency fund savings. That’s how you get peace of mind.
Nothing said really disputes this video other than not being discipline to put that money you saved into investments however that is not a flaw in his thinking/logic it is you agreeing and seeing the better option but not following through with it. Having peace of mind that you paid of your loan may be nice but you who still have 15 years left can also look and see all the money you have saved up and growing in stocks. Also the changing in price of property values shouldn't affect your peace of mind because you aren't looking to sell ( I assume) and your loan payments still remain the same.
I'll go with the 30 year path, but I agree with you. The 30 year path is not good for someone not disciplined enough to enough. Most will just spend that $700 on extra vacations and stuff...
5:26 I love when Graham turns grey and trolls the trolls lol
Your mom is a troll
I wish we had financial literacy course back then when I was in highschool and you could have been the perfect teacher for it.
im in highschool now and so thankful!
Dave Ramsey is a better financial teacher.
John Santiago I live his advice but sometimes he’s too harsh
John Santiago he’s too harsh and make you cut everything not necessary out and is like eat pb&j till you pay the debt off!!
Saptaborna Barua because he wants you to pay off debt as fast as possible that’s why he wants you to be really frugal till you pay off debt, it’s not like he wants you to do that forever, it’s only temporary. You have to sacrifice a little bit to achieve your dream of being debt free the fastest way possible is what he teaches.
Awesome video! I love how he tackles the question from both sides and covers it from different points of view. This is a must watch video for anyone interested in Real Estate.
Obtain the 15-year mortgage for your primary residence. Obtain the 30-year mortgage for investment property. Nothing sweeter than owning your primary residence and having others purchase your investment property for you.
Actually it's a lot sweeter to have a big brokerage account, ROTH IRA or anything else than fully owning a home sooner than needed. If you can get 7% or better a year invested, why pay down your 5% loan???? It just doesn't make sense.
I know this f**** feeling :D
Good point
@@tylernorby4939 because people don't understand what an exponential function is.
@@tylernorby4939 investments actually make 9-10% per year before inflation, 7% after inflation
Nice. This guy just did all of the math on a question I thought I already had the answer to. Glad I was right.
I think Graham got the math wrong slightly, when he was calculating Monthly Mortgage payments for 15 year loans, he typed in it for 5% instead of 4.375% making the price per month about a 100 dollars more.
As we can see at 4:29
I have worked in the mortgage industry for a few years. When it came to their own personal loans, none of the loan officers did a 15 year loan. It was almost always 30 year fixed or interest only. And also, besides just investing, you can also you use the difference to buy life insurance, or disability insurance. Things people forget about until they get hurt or injured.
Graham I just paid off my 15 year mortgage earlier this year. You made some good points; however inflation and mortgage rates are at historic lows. Back in 2003 when I originated rates were higher (meaning a higher spread between 15 and 30) and inflation has been dormant. So 15 yr worked out better. Plus I feel good after paying it off.
Agreed. As interest rates rise this won’t work!
Same here, I took out a 15 year loan but I paid it off in 13 years. The spread was much higher back in the 90's.
Thanks for sharing this. It was really informative and got me thinking. I am a huge Dave Ramsey Fan and I can really see now what would be more beneficial for me and my family in the long run.
When in doubt, go with 20 years. You get advise from Graham and Dave .
Rates on the 15 year right now are much lower than the 20 year though
Although your videos are aimed at older audiences, they are enjoyable to the point that I watch them while I’m still in high school. Graham the online mentor ✊✊
Thanks so much!!
@AxTube trust me if you are in high school right now, and you are watching this kind of videos, you will be doing great in live. @Graham Good job Graham
I'd pay the house off a soon as possible get solar paid off. Have a backyard big enough to grow my own food. And if I'm far enough in the country have a well dug. And a pond with fish. The more self sustainable your home is the less worry of the market.
Lone Surviver good thought
@Joseph Greene just because I want to have a house that sustains larger parts of my needs I'm a crackhead ok whatever you have to tell yourself to sleep at night bud 👍
I used to think about doing it this way. If fhit really hits the san I'll simply use my guns to acquire a self sustaining property.
"Boats & Hoes" made me laugh, thank you
I didn't expect him to say that at all LMAO!
Me too 😂
What's that shiny object on the right side of the screen -- a relatively inexpensive, but reliable, car that
just gets you from point A to B ?
Boats and hoes. In the next sentence he said "useless stuff".
He's implying that sex workers are useless objects. The left is coming for him
Great video, and great explanations! Just wanted to let you know that you used 5% interest for the 15 year loan instead of 4.375%, which would move the interest from the 15 year from $127k - >$109.7k, and the monthly payment from $2,372->2,276. I haven't don't the math on how this effects all of the other numbers arrived at in the video, but it would be interesting to see what impact it has.
Why would the interest and repayments decrease with a higher interest rate?
I get your point, and it's valid. However, it takes discipline to invest long term and a market that will work in your favor. That's asking a lot.
Not really. Speak for yourself.
The market is historically proven to move in the exact projection. The discipline point isn't really valid since Graham's point was to highlight the money-making possibilities and not the guaranteed amount all who finance a 30yr will make.
I have both 15 and 30 year mortgages. In terms of rental properties I believe the 30 year mortgage is the better product.
For you primary residence, if you are not an investor and you intend on staying in the home long term, I believe the 15 year is a better choice.
rental properties should always be paid for in cash up front, never financed
Yes agreed 100% this video is based on a more business point of view not all of us are in real estate
30 year is definitely a better product. For the banks, not you.
@@eatpigsnot I agree, and disagree. Finance is a business decision based on cash flow, and risk.
Tony Gayden it depends on your finances. We got a 30 year loan but we pay extra every month on our principal. Our extra monthly payments are actually half of what the mortgage is.
Thanks so much, Graham. Very informative!
I understand his argument- but I don’t know anyone who sits in a paid for home who wishes they still had a mortgage, no matter how the difference is invested
it’s different for everyone pretty much but that’s why even if you get the 30 year mortgage you can still pay it off earlier if you are able to
Yes I’d rather have a mortgage and a rental property rather than no mortgage no rental property
With the loan rates right now I was able to refinance my 30 year to a 15 year for about 75 dollars more a month.
@@danhall5761 tell that to the many people that have property's under air b n b and are losing them due to the coronavirus
To be fair I think everyone who ever does a Home Equity Line of Credit is that person
I have been paying on my house for 10 years now. Never missed a payment. I only have 5 years left and my house will be payed for. Do you think I am wishing I did a 30 year mortgage over the 15? It’s half the time to do the 15 year. You won’t regret other missed investment opportunities that might have payed out at higher rates. Not having a mortgage payment is the way to be. Not living under 30 years of payments is a blessing . Trust me, I will be 37 and have my house payed for. The 15 year is the best financial decision I have ever made.
I think its better to take the 30yr loan and just pay double every month. just in case you cant always afford it
The likelyhood of people paying double is very unlikely
@@ikeformayor true, however if you have a plan and budgeted properly it can be done. My husband and I have a 30 yr. mortgage we got 2 years ago. Currently we on our debt free journey (thank you Dave Ramsey!!!) and will be completely debt free including the mortgage in another 3 years. We are extremely glad we have the 30 year it allowed us the flexibility to pay off debt faster.
@@ikeformayor exactly, bur like a wise man told me; just because your broke dosent mean that everybody else is.
he is talking about buying a home to rent it,not to live in it
With a 30 year loan its easier to have the rent cover the entire monthly mortgage payment.
🙌🏼
Well for rental property it feels like a no-brainier is just your own home that’s harder
This is such a great explained video. Thank you!
I think it’s also important to note that banks will always foreclose on homes with higher equity first, because they will short sale for a profit instead of a loss. So unless you have the cash to pay off the mortgage, or can guarantee you will never face financial hardship, it’s less risky to have a 30 year mortgage and pay it off with a lump sum when it’s convenient
If it has equity why are you letting the bank foreclose? Just sell.
@@doomedwit1010 it happens, not every time but they start the proceedings and sometimes people don’t sell in time
Haven't checked your channel in a while but 100% agreed. I'll take the 30 Yr. Mortgage. If I want to pay it down faster I can always make an additional principal payment. Love that you've gotten 700K subs BTW. Congrats. Impressive.
He literally said that if you value being debt free more than making extra money then ignore the whole video. Y'all get butthurt over anything.
Nicole Rodríguez food for thought that flys past people’s heads often...
You dont make extra money though lmao
@@pt9373 But you do though lmao.
Debt free is where it's at. Death in family, lay offs, so many things cam happen in 30 years.
A K save the money up before u take on the debt & invest in life insurance 🤷🏾♂️
All of the stuff you said makes total sense. Thanks for laying it all out in a neat little video.
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Duuuuude.. I am currently weighing the pros and cons of this decision irl. Thank you!
I started w a 30 yr, refinanced to a 15, house paid off, best thing I ever did.
I applaud you on the wrap up for all the Dave Ramsey people👏🏻👏🏻
Best. Video. Ever. Thank you for sharing such invaluable knowledge.
30y fixed @ 5% in 2018 w/ 1.125 points .... less than 2 years later, we're getting 30y fixed @ 2.85% and the bank is paying US a few grand in closing credits!
You got me, I just subscribed. I’ve been thinking about doing this math but you just did it for me. Thank you!
Too bad you subscribed. All his other videos are terrible...just kidding.
While I agree with the analysis from Graham, I think several important factors aren't called out here:
1. On a majority scale, people are more likely to allow lifestyle creep to eat up that $762 savings. Not that they can't save it, but most statistically won't (and this video is all about statistics).
2. 15-fixed helps most people stay on track with owning their home in a realistic amount of time and not be tempted to over-leverage themselves across multiple properties.
3. Right now (COVID-19) is a perfect example of the dangers of over-borrowing and banking on consistent market behavior or your income.
Yes, this video isn't intended to be aimed at folks who prefer being debt-free, but I personally feel it would be better advice for people after they own their primary residence. Real estate is an amazing tool to build wealth, but it can also ruin you if you try and press the limits. Thanks for the video, Graham!
Graham's title is giving improper recommendations and assumptions are flawed. Because he's basing is on the situation in 2019. we don't know what's going to happen in the next 15 years or 30 years. he's assuming interest rates are the same. interest rates will spike which will gonna happen because we're at historic lows not norms. over the next 15-30 years interest rates will have to return to normal or higher so 15th year loan would be much safer than a 30-year loan when you Factor in the interest and especially how much you paid down in principal and in down payment. Also is assuming there will be inflation of 2% what if there's deflation or high inflation. don't throw the number 2% and imply that's a certainty. The danger of UA-camrs giving financial advice. there's no financial recourse. they're not brokers they're not financial planners. you can't hold them accountable. Beware the advise is free doesn't necessarily mean it's good or accurate
One additional thought. Either way, if you invest the extra money by doing a 30 year every month, or pay off your 15 year mortage early, I think you're going to be in good shape when retirement hits. both are valid options.
genius. thank you for spreading your knowledge.
I understood only 10% of the video even after watching full video
POWER IN SILENCE He talks a lot but there’s nothing to learn from him. It’s not just this video. What’s there to learn when he makes most of his money from UA-cam ads (more than $100k out of his monthly earnings of $160k), and tiny amount from his rental properties ($4,800 out of that $160k) according to his recent videos. It’s a joke
Highly doubt he's making a $100,000 a month from youtube😂.
jtim83 You’re right. He makes more than 100.
@@jackel13 LOL I'm not a retard, you're just a noob. I do real estate investing myself, and only the people barely starting to scrape this industry will feel like they are learning a lot from him. I gained nothing from his video. He just talks in circles and he only talks about basic stuff. sorry if these are advance stuff for you, you got long ways to go. :) There are way better guys in UA-cam who give out better information without showing off their cars and other stuff to attract viewers. You seem to already know he makes most of his money off from UA-cam. He might as well say he is a professional UA-camr and does real estate as a hobby on the side.
@@hl4094 You say there's nothing to learn from him, but then go on to say that only beginners in real estate can learn from him. As an experience real estate investor, congratulations, you probably don't need to be watching his vids, but that does not mean others can't learn from him as you've already admitted. Last time I checked, $4800/month in passive income from real estate isn't bad, and I did not see anything false in the vid (I'm a finance guy, btw.) If he makes six figures from UA-cam every month, that's pretty awesome and if I were you I'd learn how to make some UA-cam vids on your own channel instead of trying to act high and mighty on his so you can make that much from this platform as well. Honestly, you sound a bit jealous and I find it hard to believe you actually are that big in real estate just based on your lack of arguments...
I got a 30 year mortgage for the lower monthly payment for wiggle room.
Also pre approved for $160k with zero credit and bought a $70k condo.
Paid it off in 9 years using my $3k-$6k tax return and paying $500/week to principal the last three years.
And I still maxed out my 401k and Roth IRA also saved/invested anyway and never consumer debt.
You give an insight of what people think and comment about your video which I find funny. Keep up the great vids👍
Hi Graham, Enjoy watching all you videos!! love them!! We have a rental property almost paid off and we are thinking of refinancing to buy another one? would you recommend doing this? Or should we just start save up for the down payment for the next property?
I will do a 15 year mortgage every time. I hate debt.
Good for you.
You can pay off a 30 year mortgage in 15 years. What the heck are you guys talking about?
@@Name-jw4sj I know it's stupid.
@@Name-jw4sj right, I really don't get it. You also pay less interest in a 30 year if you pay into the principal because they charge more interest in the beginning of the loan and less principle.
if you are not financially educated, never go into debt...wise move
Thank you for being so in depth for free 👏🏻
You got it!
You do not want to be paying off a mortgage in retirement. So if you are over 40 and buying your first house and don’t intend to pay it off early, you could get trapped, especially if you lose your job, lose a spouse,etc.
A rental property is a different ballgame. Losing the house you are living in due to foreclosure with kids is devastating. Losing your rental property is far less damaging.
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Lol
Lmaoooo
DUDE! I logged in just to say your Cartman impersonation was awesome! LOL It really got me laughing. Keep up the good work.
thanks!! :)
Lol 'blow the difference on boats and hoes' was hilarious to me. I didn't catch that the first time I watched this
I paid off my first home in 1993 when I was in my early thirties best thing I did back then. I always had that freedom to spend . Was able to pay cash for big new home later. Which is a income now . But what you said about cash flow 30 year loan makes a lot of sense .
Thank you very much for making this video. I'll have to study it and see if everything applies in my country of residence. But just the very idea that "it's ok" to take out a 30 year loan has opened up my thinking a lot. Yes, I'd much rather earn 300$ a month and then "suddenly" own a property rather than just break even with a lot more risk involved. And how timely of the algorhythm: I was just wondering today what do I even gain from owning a property when all I get is the monthly rent and that after 15 years of no profit but much effort. It's a lot different when you gain from the very start.
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I disagree that the payment will be “significantly” higher. I bought an 300k home, put 20% down the payment difference between the 15 year and 30 year was about $120. For most of you there’s no reason you shouldn’t do a 15 year. 8/10 Americans live paycheck to paycheck. There’s a strong chance you fall in the 80% of Americans that can’t come up with $400 in an emergency. Take a 15 year in your home so the payment is 1/4 of your take home pay. After home is paid off pay cash for real estate. His math is solid but human error and your other desires will screw you over. Be safe, not greedy.
Thank you for being you
300k loan with 20% down(60k) for a net loan of 240k. 30 year @ 5% = 1551\month, 15 year @ 4.375% = 2104\month. Difference of 553\month. He laid out why paying off a home loan early is a not the best move financially. Cash flow is a big deal, especially for the people who live paycheck to paycheck.
Elementalism if you live paycheck to paycheck you should not buy a home
Elementalism okay math is right, but guess what if you’re that strapped financially what happens when people stop paying? Trash a rental? House sits empty? If a $500 cash difference a month is the difference between being able to be a land lord or not you are not financially ready. Coming from a person who has 16 rental homes. I was able to retire at 37 because of them. Assuming everything works out great then yes you’re right, but life almost always smacks you in the face
@@preston7795 you have 16 rental homes but fail to see quickly how a $120 payment difference between a 15 and 30 year mortgage on ~$240,000 would make absolutely no sense? Seems fishy...
I did a 15 year with a fixed rate of 3.375% I'll have it payed off by the time I'm 37.
Dexter Morgan great job!
What bank gave you a 3.37 interest?
@@alexmiranda6582 A mortgage company called Crown Mortgage. I have really good credit and you get a lower rate if you do a 15 year compared to a 30 year loan
@@dextermorgan4172 Thanks! I'll look them up.
@@dextermorgan4172 I have 2 questions, How long ago did you get your loan? Did you get a FHA loan or conventional loan with 20% down? I got offered a 4.125% for 15 years fixed, they said it was the current market... if I wanted a lower rate I would have to pay for points.
I have learned so much from your videos. Thank you.
REAL MATH TO BACK IT UP. You're a gem, thank you
His math assumes everything but risk though.
Some of us just want to pay off our house as quickly as possible and relax. We probably are not real estate investor types. We just want the Peace of Mind of a house paid for in full.
Agreed, more risk(longer loan), more reward. It is a trade off.
You can still do that with a 30 year mortgage though? Did you not watch the video?
Opinion time 😄 - the 30 year is great IF. You can control your spending habits a lot of people can't control their spending habits, and as family situations change you can budget as your habits dictate .
The 15 year loan forces you to budget forces you to pay more.
In Australia we have negative gearing, paying your family home off faster is potentially better (depending on your tax bracket, and investment strategy) allowing the cost of your investment to negate your income tax bracket. (Personally not a fan of negative gearing)
So my opinion is always buy cheaper extend the loan and pay off faster, whilst you live in it do it up (yourself don't spend thousands on designer benches, you don't want to over capitalise, you are renovating so the house is crisp and clean when a tenant goes in) Once the house is in a positive cashflow range,get it valued so capital gains tax goes off when you started renting out the property (if you plan to sell convince the valuer it's worth a fortune 😆) buy a different property move into it, rent out the old primary property of resistance (PPOR) Of course there are other ways like buying the investment first, but in Australia you can rent out your PPOR for 6 years before capital gains tax is applied, so long as you don't claim any other property as your PPOR. This is assuming you plan to sell, personally my plan is to retain and retire young my current situation is 15 years out my goal was retire with a passive income by 40, however I think I'll be closer to 45 (still a great feat for a couple of millennials who have 3 kids and never got a degree between us😂🤣)
If you can't manage money, that's a whole different problem. Should you be fixing that before watching these videos? The only people who say "Mo, Money-Mo, Problems" are those who have never had money before.
Great insight. Thank you for your explanation
PREACH! BROTHER!!! I've said all these SAME things to my friends and family who ask me about financial advice (except the inflation thing).
I'm paying off my 30 year mortgage in about 5 years by paying off principal on a monthly basis aside from regular payments. I'm on year 2, so far on track. After this I plan on getting a rental property or two and if it goes well move in for more.
🙌🏼
You’re actually such a legend
This was definitely your best video. You were very technical in your explanations. much props
You’re a badass, thank you🔥🇺🇸
Easier to make bi-weekly payment plan, if things go south you can always cancel the plan.
By the end of the year it works out you have made one extra payment.
In the end you take 5 years off your mortgage,with little or no risk.
I like a hybrid of Dave and Grahams idea. I definitely still believe in paying down the debt faster than whatever the mortgage is but also having a term life insurance policy to cover the value of the house if tragedy should strike. Also having that extra cash like Graham suggests gives you a better retirement package in the long term. Social Security may be paying 30% in 20 years if at all....can't count dollars I don't have.
Thank you! Great job! Excellent explanation!
Thank you for taking the time to make this video, very thorough!
In summary, math.
•What’s your tax bracket.
•What you plan on doing with the reserve dictates the value that can be gained or lost.
Agreed!
Men, you are everywere, I see your comments all over youtube (more about car stuff)
@@AndreM98 😂😂 that means you are everywhere too🤭 lol
15% I invest and only pay capital gains tax.
@@silvesteinrmartin It's a bear market right now.
Thank you for acknowledging us security seekers. As a single momma the security of a home that can’t be taken away has moved to the top of the priority list over and above amassing other investments.
Very informative video. Could you do a video explaining various real estate buy/sell platforms such as online platforms or consulting to realtors? Pros and Cons
An awesome breakdown between the 15 and 30-year mortgage. Thanks!
Video made sense to me, after reading the comments I'm more confused than before
lol
Lol 😆
This is all theoretical and the fact is we don't know how taxes will change, how investments will grow even with historic averages, and honestly if you can get a 15 year mortgage and these bottom interest rates the difference in payments is so little that it you're basically borrowing for free anyway. I think the most important thing is to have a strong equity position so that you have options if the climate changes or you want to buy another property. Ask all the airbnb and landlords out there how they feel right now about holding on to all these mortgages with little to no equity and tenants that won't pay.
Debt isn't a bad thing if you manage it correctly I get what you're saying in this video but I think for most people the better strategy is to get the house paid off faster and to also make sure they never refinance to pull cash out and to also really understand finance because people are reactive by nature without understanding the underlying asset class.
Yes, the key thing he is missing in the video is RISK. Debt = leverage, and you can obviously make more money with more leverage, but it is also more risky and you can get wiped out in a downturn.
Love love love the advice with the examples even better to understand. I'm happy I saw this video before buying.... Happy Subbie over here👍🏽🙂
honestly i would rather pay off in 15 years, sleep better for the rest of my life than having a mortgage breathing down my back for another 15.
Assuming you're on a path of growth. Rent the property out and profit for 15 years
It's not a bad plan. Math basically says a 30 year is "cheaper" than a 15 and a better financial decision, however people aren't robots and being able to own the house outright "early" is quite nice.
I’d do 30 year so I’m more likely to die before paying it off
I mean if You don’t have that much money , why be in a rush to pay it?
I’ll take my paid off loan (paid off with a 15 yr) going into downshifting and retirement going into the covid 19 era. There a life stage to consider as well.
If Graham ever releases a book on investing he should title it, "Boats and Hos."
You brought up a lot of good points i hadn't thought about before, although I was raised in a family that didn't invest at all , more saving and avoiding debt.
Great video Grant. Thank you!
I have been through many mortgages.....debt is debt. Great rid of your mortgage or any debt asap. You now have an unlimited amount of disposable income. You are in control....that is power.
Also making extra repayments allows you to build up a redraw balance and lowers interest. So if things get tight you can just pay the interest off or even defray to hep you get through tough times. Obviously that’s a last resort, but better than having the collectors knocking on your door.
Some points that were missed:
Home values go up around 5-7 percent a year in many places. The faster you pay off your loan the more equity you get from it as you pay less interest and the price of the home is higher than when you bought it.
He also forgot to say that the 200,000 that you make of the S&P would be offset by the extra 140,000 you paid in interest. He also states that you can pay off a 30 year loan faster than 30 years if you want, but the same is true for a 15 year loan. If you pay above the minimum for your 15 year loan then less interest accrues, meaning the total price you pay for a house vs the price of the house when you pay it off gets even further apart. I think it's a good video but these points need to be made as well.
B craggen finally! Thanks!
This is incorrect because while the value of the home increases by 5 to 7%, the principle borrowed remains constant. The rate of your mortgage payoff would have no impact on the equity you grow through appreciation
The way he added up he didn't have to deduct the extra interest paid from the investment money so it still is a net 200,000 gain. you're also right about depreciation of the property value however in this example I think it would be the same $300,000 house so that gain would be equal over 30 years. When something on both sides of the equation is equal it's best not to mess with it, that's just extra work (he's talking about the difference between the two)
with a 30 year mortgage you can buy a more expensive house. And get high appreciation (Not rate of appreciation).
@@Bobxchen333 I am not sure I like that way of thinking. Here in Texas you pay 3% in property taxes and almost 1% on insurance so the bigger house you buy the higher your monthly nut. You pay 4% more guaranteed and gamble that property values rise by more than 4%. You are better off buying a much smaller house because your utilities and maintenance will also be less.
People buying a large house for the hopeful rise in value with no additional income on the property are playing a fools game. Trying to impress is not a great route for wealth. Many do it but there are easier way to generate wealth.
Thanks for actually showing your work. It’s hard to argue with the calculations