Financial Freedom Friday – Which Mortgage is Best?


Hey everyone. Welcome back to Financial
Freedom Friday. My name is Nate Scott. It’s great to be here. We’re going to
discuss tips and strategies to help you achieve Financial Freedom sooner rather
than later. Today we’re going to talk about mortgages. Maybe not those exciting
topic but honestly getting a mortgage and choosing what home you’re going to
live in for the next however many years of your life is one of the biggest
financial systems you’re going to make. So we’re going to talk about mainly the
two types of mortgages that are most common when people go out to buy a home and
that’s the 15 year and the 30 year mortgage and so there’s those are
the two types and we’re going to discuss which one I think is better and so each
one has its benefits I’d say, but you know today I’m going to share with you
why I believe that the 30-year mortgage will almost always be the better option
than the 15-year mortgage and I know I’m very aware that people like Dave Ramsey
maybe some other financial gurus have come out and said that everyone should
get a 15-year mortgage and they’re very adamant about it, but you know I’m more
in the lines of Warren Buffett who says that a 30-year mortgage is one of the
best tools that the average person has in their arsenal. So we’re going to talk
about why the 30-year mortgage I believe is better than the 15-year mortgage and
the benefits that it has and there’s really three main reasons that we’re
going to go over of why I think that the thirty-year should be something that you
should focus on. So the very first point of very first reason I think that the
thirty years a better option then the 15 is risk. A lot of people aren’t fully aware
of this that when you take a 15-year mortgage you’re actually taking more
risk personally and how this works is let’s just say you go out and you’re
choosing between the 15 and 30-year mortgage and all things being equal the
15 year mortgage will have a higher payment than the 30-year mortgage will.
So let’s say the 15-year mortgage has a $1,000 a month payment and the 30-year
mortgage has a $600 a month payment just for ballpark numbers we got a $1,000 a
month for the 15, $600 for the 30-year mortgage and you say well you know the
banker came and said in front of me he said look at how much
interest you’re going to pay on a 30-year mortgage. Wouldn’t you like to
cut that down and choose the 15 years you won’t have to pay for as long. You
won’t pay as much interest over the time period and you’re like yeah that sounds good but the
problem is once you sign the paper and you’re now with this 15 year mortgage
paying $1,000 a month you’re locked into that. You can’t have a down year in the
business. You can’t lose your job and say you know 5 years ago when you gave me
the option between the two and I chose the 15, well can we go ahead and just switch
that to the 30-year mortgage? I’m having a tough time paying the higher
payment. I’d like to just get locked in. You know what they’ll tell you? They say
no you chose the 15 year. You signed the contract. You’re stuck at the higher
payment. The problem is that if you were 5 years from now to be in more
financial hardship or a tough period of time when you would have rather only had
to be obligated to pay the lower amount is that the best time to get a loan? Or
to refinance? If you go back in after having just lost your job and say you
know I’ve built up some equity because I’m paying the house off quickly. I’ve
got this higher payment can I go ahead and get some money back out in
transition to a 30-year mortgage to kind of relieve this tough period that I’m in?
They’ll say well no you just lost your job or your business isn’t profitable
right now. They’ll say unfortunately no and so most likely is more risk in the
future for potentially having to lose the home or sell it because the really
you’re handing money over to the bank quicker to pay it off quicker and you’re
locked in to do that and the best time to borrow money is whenever you don’t
need it. So then if you had the 30-year mortgage you could easily
weather the storm with a lower payment and you wouldn’t have to send them all
the money. So more on that in just a second but many times the interest rate
on a 15-year mortgage is lower than a 30 because it’s less risky to the bank and
it’s less risky to a bank it’s more risky for you because you’re locked in
to always pay the higher payment no matter what.
So the first issue is risk. It can be more risky and you can have a higher
chance of losing your home on a 15-year mortgage because many people are broke
because they answer to high house payment. They have no money but they’ve
got a house that has a lot of equity in it. Well, that doesn’t do you too much
good so the second one is taxes. The second point is taxes. As we know here in
America interest on your primary residence mortgage is a
deduction that we all can take advantage of and so whenever you’re paying
interest on a 15-year mortgage the interest goes down rapidly so not only
is less proportion of your payment deductible because a lot of its going
towards principal but you’re also going to have less timeframe to take advantage
of that interest deduction. Whereas a 30-year mortgage a higher percentage of
your payment is going to principal and you have a much longer time frame that
you get to take advantage of it so in actuality tax you can actually lower
your taxes over a longer period of time by having the 30-year mortgage instead of
the 15-year so the second one is taxes. The third one is profitability. Now a lot
of you would say well make you just told us that you’re going to pay more
interest on a 30-year mortgage than you would pay on a 15-year mortgage so how
on earth could be more profitable to take the thirty-year than the 15 year
and that’s a great question but it’s actually a play down I think
you really understand it that’s the problem when you walk into a bank many
times they show you the to option they say man you’re going to be so much
interest on the 30-year mortgage trust me you’re going to want the 15 year
you’ll pay less interest and that’s really very shallow thinking it’s like
the nickel hiding the dime here because if we went out and we got a mortgage a
30-year mortgage and let’s say the interest rate is 4% we know that if
we’re in the we’re paying taxes maybe you’re in the twenty five percent tax
bracket really you’re the net cost of that mortgage might only be three
percent into the four because we get a tax deduction when we pay it so you’re
telling me that you can’t find anywhere better to put your money that would earn
you more than three percent that’s what you’re saying
I think there’s plenty of places can remember let’s go back to our first
example if you’re paying a thousand a month on the 15-year mortgage and 600 a
month in the 30 if you choose the 30-year mortgage you have 400 bucks a
month that you can choose where to go the 15 yards automatically go into the
principal of the house the third year you’re not sending as much towards the
principal which means you get to have control of that money and choose where
you want to put it I believe in you I think you can earn more than 3% on that
money and in fact we’ve even seen people using this the infinite banking concept
take the difference in payments between a 15-year and 30 and put that money in a
policy and 15 years down the road they actually have the money not only to pay
the mortgage off so essentially turning it into a 15-year mortgage but they also
have additional money because they earned a higher return than what the
mortgage actually costed them and if you can work with us with very little risk
you probably do other things with it and not only that but you had control of
that money for those 15 years so in case something did happen to you then it
you’d be able to whether this one really easily you had a whole bunch of money
that’s yours not stuck in the house but is yours so you actually can make not
only in 15 years – if you are a decent investor and has something even like a
policy that you can use to pay off the mortgage if you really want to get out
in 15 years having a mortgage but also make money during the process and so
what I would tell you is 15-year mortgages are really great for those who
financial discipline is not your forte but for most of us if we can be
disciplined to save the difference many times you will be better off using the
thirty-year more profitable you’ll save less on taxes and be more profitable and
you’ll have less risk of losing the home if you choose to thirty-year but choose
to do it wisely let’s follow and warm Buffett’s
footsteps he thinks it’s the greatest thing out there so I’m going to choose
to follow him he has a lot of money so we’re going to focus on what Warren’s
doing and so and remember by the way if you don’t focus on building your
financial freedom nobody’s going to do it for you
let’s go ahead and get to work we’ll see you next week you

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