2 Better Ways To Pay Off Loan Than A 15-Year Mortgage

Two Solutions to paying down your mortgage without giving up flexibility

In a previous post we went over the pros and cons of a 15-year and 30-year mortgage. If you don’t want to re-read the full post (you should, it is another good one), here is a summary:

• 15-year mortgages allow to you to pay down your loan faster and save you a substantial amount of interest over the life of the loan

  • 15-year mortgages have a significantly higher monthly payment to achieve this faster paydown

  • 15-year mortgages typically come with a 50+ bps (0.50%) or more discounted rate to a 30-year mortgage

• However, most analysis ignores the opportunity cost of choosing a 15-year mortgage. By electing a 30-year mortgage and having a lower payments, you would have extra money to invest

  • If you can earn a higher return than the mortgage APR over the 30-year lifetime of your mortgage, you are better off electing the 30-year and investing the difference

• Additionally, a 15-year mortgage limits your flexibility/optionality due to having a higher required payment every month

The above bullets should make a metric butt-ton of sense (scientifically speaking). If not, you should take a minute and go read the previous 15 vs 30 year mortgage comparison and about opportunity costs.

I ended the previous 15 vs 30 year comparison post with a bit of a cliffhanger. There are other options than choosing a 15 or 30-year mortgage and paying the required amount. Well, here are 2 you can use that give you more flexibility and allows you to pay down your mortgage faster than 30 years if you choose.

(Should you pay down your mortgage faster is a different question? Here are my thoughts on paying low rate debt off when inflation is high)