Mortgage – To get the longest term or not

The basic premise of this post is this:

You should get the longest term mortgage that you can get. Say, 30 years.

You should try to pay it off much faster. Say, 10 to 12 years.

Note: If on the 30-year mortgage you were to pay every month as if you were paying a 15-year mortgage, you WILL NOT be able to pay off your 30-year mortgage in 15-years.

It will take you a few more payments, depending on the rates of each mortgage. That is the premium you would be paying for having a greater rate of interest, but lower monthly payments.

But, let’s suppose, you were to pay your 30-year mortgage as if it were a 10-year mortgage, you WILL pay it faster than if you took out a 15-year mortgage and paid the standard calculated mortgage payment every month.

As an example, let’s work with the following numbers. Here is the link to the Google sheet that lays out the numbers …in all their gory details 😀

(Rates are from about 5 months ago)

Principal mortgage amount: $300,000

Rate on a 30-year mortgage: 4.5%

Rate on a 15-year mortgage: 3.875%

If you were to take out the 30-year mortgage, and if you were to make the full 360 payments, you will end up paying $247,220 in interest on your $300k loan.

But we don’t want to do that. This is the control option. We want to know what the interest number is but we will not be following this option.

If you were to take out the 15-year mortgage, and if you were to make the full 180 payments, you will end up paying $96,057 in interest on your $300k loan.

Now …the scenario we want to focus on.

In this scenario, you are paying your 30-year mortgage as if you were paying down your 15-year mortgage – i.e. you are rounding off your monthly payment to what would amount to if you were paying a 15-year mortgage, an extra $680.26 that goes directly in reducing your outstanding principal every month. In this case, you end up paying $120,893 in interest, and you pay this over 192 payment.

More than a 50% decrease from $247K to $120K. Voila! But still more than what you would pay for a 15-year ….

Why 192 payments? Because it won’t be 180 payments as less is going towards paying down the principal than if you actually had a 15-year mortgage. This amounts to paying around $96 more in per month for what I call the “premium for safety” that you pay for not taking out a 15-year mortgage.

Whew. Still with me? We have one more scenario to cover.

Now …we come to the scenario that I really want to focus on.

Look into the second sheet/tab in the worksheet.

What if you were to pay down your 30-year mortgage as if you’re paying a 10-year loan (with the rates from the 15-year loan).

You would end up paying only $76,035 in interest and pay off your mortgage in 125 months (still more than 120 payments if you actually took out a 10-year mortgage, but close enough).

I’ll repeat the theme of this post here again: Get a 30-year mortgage. Then pay it down as if you were paying a 10- or 12-year mortgage.

You will pay far less in interest, $20K in our example. But you also have the option with a lower monthly payment if you cannot accelerate fast enough.

There you go. Download the worksheet and play around with your own numbers.


There is one more scenario which in the third sheet, that tells you what is the optimal number of payments you should aim for if you want to come closest to paying the total interest if you had a 15-year mortgage. In this case it comes out to 148 payments.

April 2019

We were less than $2.5k away from being “asset millionaires”! (That doesn’t really mean anything, but the little joys of “millionaires” and “we” being in the same sentence :D)

At ~$23K, we posted our lowest year-to-date monthly increase of net worth. I can’t even begin to imagine how privileged we are to be in our position. Some of it comes with being judicious with our spending and automatic savings/investment. Our incomes helps as well. But where we started off in our adult lives, or for that matter the factors that precedes our birth, play a major though silent roles in where we are. #acknowledgePrivilege.

We paid taxes last month! On April 15th, automatic direct deductions were made from our account: around $2.5K to Federal and $500 to state. For the past 9 years or so we have owed money at the end of the year. This is expected as we would rather owe money than get a refund. Ideal case would be if we had paid the exact amount of tax in the prior year, but that’s hard to pull off. I’m perfectly fine with the government giving us an interest free loan for a few months, on which we earn interest! We have a savings account earmarked for taxes that pay 2.5%, so it’s a win-win for us.

Nothing else really worth noting for April. Markets have been on an upward swing. No major spending. Just a good ol’ solid month.

We as a family made a major decision last month. Not quite ready to reveal it here as we need a little more time to flesh it out. Stay tuned for some big update in the next month or so.

March 2019

The markets have been relatively flat over March but we have been pumping in our usual amounts to our respective 401(k)s, joint brokerage account, and 529 for the kiddo.

Also, we made most of our Roth and traditional IRA contributions for 2018 last month. We were pleasantly surprised that we’re still able to contribute for Roth, though our MAGI was in the phased out section. Don’t think we’ll be able to contribute to this bucket for tax year 2019. The reason we waited to make our contributions so late is we wanted to know for sure how much we’d be able to contribute in our Roths, knowing well that we would either be over the range, or close to the top. Once we filed our taxes mid March, we got the AGI, and then the MAGI, to determine how much we can contribute.

Asset for March is at an all time high, so is Net Worth. Liabilities are down by almost $4.5k compared to February.

A $10k bond we had for the past 20 years reached its final maturity last month. For the time being we have kept that in a checking account.

Remember: Markets will fluctuate. Maintain course!

Read here on what makes up our Assets and Liabilities.

February 2019

Total assets of $955k for February has smashed the previous high-water mark of $937k set in September 2018. Net worth is at all time high of $744k. Wow! Keep in mind though, as we always do, the market will have some hiccups on the way.

Outstanding mortgage is below $200k. I think we can reach our stretch goal of bringing this down to $160k by the end of the year.

Major expense for last month was $1,038 for home insurance we paid using credit card, and promptly paid back the card. $13 instant cash back! We took off home insurance through the mortgage escrow as soon as we were able to and now pay it directly and pocket the cash back.

January 2019

Typing out the heading for this post made me wonder, “Where did the month go by??”

With this update we’re introducing a change in how we report numbers. Our Retirement bucket is by far our largest asset. We’ve decided to expand this by splitting up into 401(k) and R/T IRAs by individuals.

With the uptick in markets in January, our Net Worth is at an all-time high. Starting in January, we’re sending $3,100 in extra principal towards the mortgage. That’s a guaranteed 3.875% return! This will ensure that we’re mortgage free in 53 more months. (Possibly quicker when you factor in one-time payoffs from bonuses)

Major expense for the month was semi-annual $836 for car insurance, for both our vehicles.

2018 in review and looking forward to 2019

Even with all the carnage going on in the markets in the last few months of 2018, and especially December, we still ended the year in a net gain of ~$79k! It just boils down to three things really.

a) Keep automatically investing every month in retirement and taxable accounts

b) Keep reducing debt every month

c) Take advantage of market downturns and sock aside more in taxable accounts. Since you’ll be on track to maximize your retirement accounts no matter what, the excess investment has to go in taxable accounts which do not have any contribution limits.

Since we started tracking our progress from January 2017, our net worth has gone from $458k to $686k. In two full years, we’ve manged to increase our net worth by almost $230k. That’s incredible to me.

Here’s a graphical representation of how our Assets, Liabilities and Net Worth have changed over the course of 2 years.


For 2019 we have some plain vanilla and some ambitious goals. None of these are “new year resolutions” – I hate that crap!

First, we’ll be maximizing our 401(k) at our respective employers. With an increase to $19k in 2019, that’s $38k tax-free shaved right at the top.

Then, we’ll be contributing to the max in in either Roth or T-IRA. With new limits of $6k this year, that’s another $12k for both of us.

Next, we plan to invest at least $9k in our taxable accounts for the full year. This will almost certainly bump up to $10k by the end of the year. As a comparison, for 2018 we invested $6,850 in taxable accounts.

With automated pulls we’ll be putting $2.4k in our child’s 529 account for the year. I want to top it off to $3k.

Our mortgage balance stands at $206k right now. Aim is to bring this down to $160k, mixed between regular payments and additional payments applied towards principal. This will be the stretch goal!

Other than that, nothing special really. We’ll take a couple of vacations, one probably internationally. We will go on a number of road trips. And work our asses off in our respective jobs.

The reasons Americans don’t save

Read this piece by JD Roth of GRS. Thought I would explore the topic in more detail here, rather than just leave a comment on his blog.

JD, and few of commentators on his post, talked a lot about the tactical barriers to saving. JD lays out the numbers that exemplify the sorry state of affairs and the potential solutions. Instead, in quite a role reversal, I have tried took at the malaise from a social and cultural viewpoint; the prevailing conditions that has molded us to become a nation of non-savers. I have made an attempt to answer the philosophical question on why we, Americans, don’t save more. The inherent barriers which we must understand; those that prevents us to save up.

Here are my, almost certainly controversial, reasoning.

Devoid of context, any person should be able to save as much as they want. But they don’t. Everyone knows that saving more is good but invariably they won’t. Saving is hard, or that is what we are told. Saving means sacrifice. Saving is delayed gratification.

More than anything else, saving is a mind game, where the players have made their decisions based on the following:

a) What they have seen their parents do. Knowledge transferred from a previous generation.

b) What they see their peers do. People whom we interact on a daily basis. Our immediate circle of family, friends, co-workers, neighbors.

c) What the general society considers the norm. The current culture as epitomized by television, music, sports, politics.

d) A need for them to break away from the previous 3 points. If everything in my universe tend to point that saving is not a high priority, there is no reason to prioritize it. 

Safety nets

I put the blame squarely on the various safety nets provided in American – or broadly, in first world – society. 


Health insurance, life insurance, personal property and vehicular insurance. Insurance on phones, pet insurance, deposit insurance , even insurance on insurance! And anything else you can think so. Even declaring bankruptcy is a form of insurance – the last stand before I get wiped out clean. For generations Americans have been trained to think that insurance will bail them out of serious trouble if they were unfortunate enough to encounter some terrible event. 

Don’t get me wrong here. Obviously, health insurance, even if it is not universal, is a great thing! The point I’m trying to make here is, there are safety nets to hold you if things go south. Now compare it with a scenario in most developing countries. Insurance is a very flighty concept. It is every man, or family, for himself. There is nothing to protect the house you built if an earthquake occurs. If a family member falls ill, you go to the general hospital and get the treatment that’s available, paying all out of pocket. Your bank fails, you lose all your savings. Insurance provides us a sense of security, even entitlement. You can afford to not save, just pay the monthly premium.

Governmental safety nets

Another form of insurance, if you may. Social Security, Medicare, Medicaid. All subsidized form of guaranteed payments when you’re old or sick. 

Another reason not to worry about money for old age or while sick.


Till about the 1980s most American workers were guaranteed a pension when they retired from active work – another form of safety net.  

Safety nets – The primary reason for Americans not to save for an unexpected rainy day.

Here’s the next big prevailing factor that intrinsically inhibit Americans to save …

Getting paid more frequently than once a month

I’m thankful that my first paychecks were monthly. I know, the horror! Monthly paychecks are standard in Europe and Asia. It’s the US where employees are paid on a more frequent basis.

Getting paid monthly instills a sense of budgeting that semi-monthly or fortnightly (it is NOT biweekly – biweekly means it’s twice in a week) or weekly paychecks fails to do. Getting paid on a more frequent basis not only fails to prepare employees to budget it actually propagates the mentality of living paycheck to paycheck.

After safety nets of insurance, getting paid more frequently than once a month is one of the primary reasons most Americans do not get to budget properly, and consequently save.

There are other, less pressing, reasons that shape the American mentality that saving is not a priority …

Relative geographic isolation and abundant natural resources of the US

This is a country that shares its borders with just two countries, one of which is another developed nation. From oil to natural gases; from fertile farmlands to verdant valleys; from cattle ranches to lobster farms. America is so fantastically blessed to have such abundant natural resources that “scarcity” is a foreign concept. Deep down no one fears that the gas at the pump is going to be so exorbitantly prohibitive that they actually have to save money to buy gas.

No war fought on home soil in over a century

Extending the previous concept about the geographic isolation of the US, we have been incredibly lucky that no war has been fought on American soil, except for Pearl Harbor. Even then, Hawaii at that point was a US Territory, and separated from the landmass of the 48 contiguous states. The international, political, and military ramifications was undoubtedly huge, but most Americans have not had to really live through a war in their backyard. Notwithstanding the physical trauma of wars, the mental scars of scarcity, fearing for one’s life, and general “staying alive” hasn’t been on the forefront of most Americans.

Contrast this with most developing nations where some kind of war has been waged in the past 50 years or so. Even the prosperous Western European nations such as Britain, France, and Germany had their beaches and cities turned into blood soaked demolition derbies.

Unprecedented economic prosperity

This runs off the previous two points. Since the Great Depression there has been no cataclysmic economic upheaval in the US. Three generations – Baby Boomers, Gen X-ers, Millennials – of adults haven’t had a need to save and scrimp. Sure there have been recessions, great ones too, but nothing to derail the economic juggernaut that is running for 80-90 years now. With this great run has come the access to easy credit, thereby loosening our resolve to save even more. ———————————————————————————————-

There you go. The safety nets provided by government, societal, and private insurance; semi-monthly or weekly paychecks; the isolation and resources of the country; with no wars on home soil; and a great economy where credit is dirt cheap, has lulled most of us into a sense of security without having to work hard for it. Saving has mostly been an afterthought.

Our parents, and possibly grandparents, never really had to save. Our friends and neighbors don’t save. Flashy, shiny, new toys are readily bought on credit, without a second thought on how to actually pay for them. Ours brains are wired to not save. There’s no justifiable reason to. Not saving has worked earlier, it is working now, and there is no reason to believe why it shouldn’t work in the future.

When presented with an alternate version of reality – FIRE  – most people are living, they tend to recoil from this supposed blasphemy. Given some time, exposure to the concept, and logical thinking, a few come around to embrace it. It’s just not human nature. Oh, make that, just not American nature.

What do you think? Any other intrinsic factors I’ve missed out?