One of the most common questions I am asked is: should I refinance with a 15yr or 30yr mortgage. As usual there is always the sales pitch of showing how you can have a lower interest rate on a 15yr and save thousands in interest. FB is full of ads showing the advantages of a 15 yr mortgage instead of a 30 yr. It can be very enticing hearing or seeing ads that show getting a 15yr mortgage and being mortgage free in ½ the time. They make the 15yr look good. There are also many books out on money management and financial shows that push getting out of debt quickly but again the challenge with this is there is no individual advice for each person’s situation. It is all cookie cutter advice to promote show attendance and book sales. Having been 30yrs in the money coaching business the biggest point that I need to make is that “EVERYONE” needs a personal financial coach. Everyone needs someone that you can ask questions to and get personalized customized advice. You can’t do that reading a book or listening to talk shows. And most important the advice needs to be free. No monetary compensation for the advice.
The choice between a 15yr or a 30yr mortgage has multiple correct answers but most people don’t know how simple the answer is. It is also important to understand there is no wrong answer. Whatever decision you make is the right one. Maybe not the best one overall but the right one for you. If you understand all the information you can make an informed decision. What I am going to do is to try to give you some different alternatives that you should consider when looking to purchase or refinance a mortgage. So, let’s look at the different choices.
Before I get into the discussion I want to point out that there is “good debt” and “bad debt.” In these examples, we are going to discuss “good debt.” A short definition of “good debt” is low interest, fix rate, fixed term debt. Mortgages are an example of good debt. “Bad debt” is high interest, revolving debt. Credit Cards is an example of bad debt. The ads we see only tell us what they want us to know to close the deal. We have been brainwashed to believe that the only factors to consider is the interest rate and the term. Credit companies wants to take you to the maximum of what your debt to income ratio is so they can make the most interest they can. As you progress thru your mortgage and your debt is falling and your income is rising you then become eligible for more debt. So, you borrow a little more and this becomes a vicious cycle that is almost impossible to escape.
We will break down the different options for mortgages in the next series of articles.