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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.
@@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.
@@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!
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
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.
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 !
@@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.
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.
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.
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.
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.
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
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.
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.
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"
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
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.
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.
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%...
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...
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.
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.
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.
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.
@@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.
Really great explanation! I was set on the 15 year after seeing the interest difference, but I never took into consideration inflation and investments.
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.
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.
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.
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)
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 RUclips) explanation.
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
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.
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
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.
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!
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
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.
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.
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.
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.
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 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 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.
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.
@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 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.
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 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'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.
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.
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.
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 ✊✊
@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
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.
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.
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)
@@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.
@@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 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.
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.
This should have put the disclaimer in it on rental property. For personal home loans, the 15 year is definitely the way to go. For rental properties, right now loans are so low that it is a no brainer to use the 30 year loan.
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.
I am watching this video now, 8months after we bought our first house. It was 350,000 (which in place we live in is dirt cheap, 1bd condos go above $250,000), we had to put 20% down in order to give us 30yr mortgage, with payments only $1145.00/month. This gives us so much cashflow left, that we built a $12k emergency fund and started investing in just after 8months of owning the property. However the plan is to increase the equity in the house maybe by paying a bit more towards principal, just to have leverage for re-finincing and possibly buying an investment property, because the house we live in is not an investment since it does not generate any income for us and selling it would mean we have no place to live.
👍.. at least you have a plan... I am making one extra full payment per year on a 30 towards principal... its painless and helps drop the principal and interest fee, long term... Same concept has compounding interest when you invest $1200 a year into an account.. but in reverse.... **I am no genius..research your options.." I'm just a squirrel trying to get a nut"...
All this video says after all the hypotheticals is that floating on debt can make more. However in a down market all of your debt can be called at once when you are spreading yourself over multiple debt-financed assets and you will have to file bankruptcy.
Thanks... this was good only if you are a person who will invest... I’m a divorced woman and I had to think ahead to a fragile income,.. I got a 20 year loan... waited until I had equity, sold property and with cash bought a foreclosure outright... I now live debt free with no pressure of worrying about keeping a roof over my head... this turned out to be a good thing as housing costs has now escalated. My friends all envy me... I had no education on this I just accidentally did the right thing.
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@@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.
Underlying all of this is the assumption is you can reinvest the extra money at a higher rate than you are paying to the loan. That's not very hard in good years but there will be a couple of recessions over 30 yrs life of the loan. It's basically the same as borrowing the money at a fixed rate to invest in some not guaranteed returns, which is probably not for the risk-adverse people. They are not doing it wrong and there is no "should" or "shouldn't". Everyone's got their own risk appetite. You also haven't considered the downsides of having debt which can limit other financial choices people may want to do. eg. they may not qualify for the mortgage of a 2nd property if their first mortgage is still outstanding. And if you took a 30 yr loan just to pay it off early in a few years, then that's stupid because you could have just paid off a loan with lower interest - the 15/30 yr terms don't make a difference. The 30 year loan is just good for people who first and foremost care about getting the lowest monthly payments, for whatever reason.
The only issue I see in this video is that GS did not account for the appreciation of the home over time (real estate typically increases in value). He only accounted for inflation with respects of the mortgage (money you borrow now is worth less in the future). But this may be null when you account for appreciation of the property.
You show your cards when you say something like “with a 30 year loan you can afford $140k more of a house.” I’m guessing this is your next line of reasoning when a customer is debating between the two. And as a RE agent you get a bigger cut from a higher interest rate than a lower one. Kudos. Second, Dave doesn’t recommend a 15-year loan to simply “pay off your home early.” While I believe you already understand this, the whole point of a 15-year loan at a max payment of 25% of your income is to keep you within your financial means. On top of this, all the while you’re investing 15% of your income. The Ramsey plan is an entire lifestyle plan. You’re picking apart a single step that’s a part of a much bigger package and giggling about it because you’re not using context and you’re not accounting for future bumps in the road. If you can’t afford the house you want to buy at a 15-year mortgage with a payment of 25% of your income then you can’t afford the house! If you do choose the 30-year loan, know that in 15 years you will have paid only half of your house down. Starting that day 15 years from now, you will be forced to pay another 1600 per month again for another 15 years, while the person who stayed within their means will fully own the house, they will have no more house payments, and they will have a nice pile of money stocked up from the last 15 years of investing according to the Ramsey plan.
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.
Debt free living on a home is great, no more true deductions with the new revised tax code in USA, not sure this theory will no longer work, standard deduction for a single person is 12k and for family 24 k; unless you have a million dollar home you will not hit above 24k deductions so Give the facts based on current tax codes. Now it looks like renting and using the extra money to invest will make you richer, less stressful life
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.
11:00 He should have Did this math on video to show difference. investments - interest from loans (obviously this may be simplified and not count many things, but this is basically it) 15yr: 732,000 - 127,000 = 605k from investments 30yr: 941,000 - 279,000 = 662k from investments (57k more) -- also, you are flexible here with cash as to where you like to invest unlike one above traps you into investing into the property via equity.
no, in both cases the interest cost is included in the monthly payments.. so the final invested amount is already what you would have with the interest paid. You paid that as part of paying off the house, its not being paid separately afterwards. It did cost more in interest but the 15 years of extra investing made a huge difference over it.
I guess the point is that on the 30 yr loan (assuming there was no inflation) you made an extra 200k on investments, plus you were able to spend an additional 150k on your house. so the 30 yr loans sees you with an extra 350k dollars even though 150k of that went to the bank. not counting the ability to buy a second property.
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 RUclips 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
@@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 RUclips 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 RUclips. He might as well say he is a professional RUclipsr 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 RUclips every month, that's pretty awesome and if I were you I'd learn how to make some RUclips 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...
Assuming all the calculations were correct, with 30-year mortgage, one makes $209,000 more from investments with cash-on-hand, but paid $152,000 more in interest to the bank with the 30-year mortgage. $209,000-152,000=$57,000. One makes $57,000 more with the 30-year mortgage option. But that's assuming investments with cash-on-hand works out in investor's favor, which is not a guarantee, whereas paying $152,000 more in interest to the bank with 30-year mortgage is guaranteed. Average of 7% return with stock market might be optimistic. My view of stock market is that it's for people that know what they are doing, for people that could manipulate the stock market, or for people that invest with algorithms (ruclips.net/video/gjVDqfUhXOY/видео.html), not for Average Joes. My guess is, Average Joes probably would not get 7% annual return. People that make money from stock market need to make it from somewhere, there are winners and losers. I suspect Average Joes are losers. I would choose to go with 15-year instead of 30-year mortgage. Pay it off fast, and then live debt-free. Another point is, at one point in the video, it was said that the advantage of taking out a 30-year mortgage is that one could then afford a more expensive home. At a later point in the video, it was said that if one could only afford a home with the 30-year mortgage, then one could not afford it. Which is it? I would say, the latter is correct.
@@kevink9365 The 209.000 is "more profit" because of investing the spare cash for 30 years every month. But you're still paying more interest (279-127=152). So, your benefit is "only" 57.000 dollar. However your real benefit will be larger because the 30 year loan will "devalue" more because of 15 years more of inflation.
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 get where Dave Ramsey is coming from. At one point all of his property was obtained through loans. When the banks came to collect he didn’t have the money and lost everything. At least if you own your house outright if you lost all your money at least you still have a place to live. If you have a 300K house and you needed to downsize you can sell it and have the 300k. As opposed to only having paid off half of it, having to sell it and getting left with 150k. There is a great sense of security knowing that no one can take your house or car because you don’t owe anything on it.
Totally agree. I went for 30 years (but here most people stretch to get a home and go all in 30 years), but I can afford to pay 1.5 or 2 extra payments each month to reduce the period and maintain the payment. This is king, as I am not comitting fully to a big payment, but have the option to do it. The plan is to pay it off in 10 to (best case) 7 years. Yes, the intrest will be higher and the total cost will always be higher, but you have options. Ps: for a 5.3% final rate, 1 extra payment shaves 4 payments in the first year 👌
My mother, and her boyfriend took on a 30 year mortgage, with a survivorship clause, when she was about 62. She owned the home in 10 years. There was no benefit to the mortgage interest deduction, as she didnt make that much. She then got a single room in the assisted live, and sold the home.
My only debt is my mortgage and it’s my goal to pay it off as fast as I can while still investing 15% of my salary. The peace of mind of not having any debt at all is worth more to me than anything else.
I bought my first home (fixer upper) in 1996 for $64K. I put $30K down, took out a personal loan for $34K over two years. I also put $50K into it in renovations. It was fully paid by 1998. I'm still living in it. Did I make a mistake?... I had no money left over for boats and hos tho.
You didn't subtract the 152k in interest you paid on the 30yr. So you stated your investment would be 200k higher than the 15yr however with the added interest it's less than 50k difference. Point is buy what you can afford with a 15yr. You want to be debt free at or before retirement. Lastly why get a 30yr on a primary residence and try to pay off sooner? The bank takes the interest upfront regardless.
doesn't need to, because it is the total of paying interest over 30 years, it is unavoidable and also, the interest is monthly(yearly), meaning you can pay the 1st monthly payment of capital+interest, and then win lottery and pay the remaining capital without interest
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.
$732,000 $941,000 -$427,000 -$579,000 +$305,000 =$362,000 The difference is $57,000 and you get to stay in debt twice as long. Lower payments allowing for leeway month to month is the only advantage worth considering here. But self discipline and an appropriate life style make the biggest difference.
That's right. Rent would even be lower than a mortgage pmt, so you could then invest the difference saved into the S&P. So why even take out a mortgage at all? Just pay rent and invest the difference in the S&P.
Do the 15 year if you are comfortable with it. You will see the light at the end of the tunnel faster, and in 15 years you can rent out your current home and buy a new primary home. Plus the tax changes (higher standard deduction, no personal exemptions, limits to Salt), mean that people are not seeing the tax advantages they used to see.
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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!
😂😂😂😂😂😂
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.
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
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.
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....
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
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.
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
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."
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.
5:26 I love when Graham turns grey and trolls the trolls lol
Your mom is a troll
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...
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.
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.
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.
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
Really great explanation! I was set on the 15 year after seeing the interest difference, but I never took into consideration inflation and investments.
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
Thanks, I'm team 15yrs since I want to maximize stability in my life.
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.
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 🤷🏾♂️
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.
"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
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
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'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 RUclips) 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
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 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
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
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.
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!
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
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.
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.
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.
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.
Same here it's been four months now I started trading with her, and it's been a good experience.
@king bush 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 invested $10,000 and she made me profit of over $50,000 for me just in 7days of trading
I'm a newbie, looking for a something to venture into on a short term basis, I have about 6k sitting in my savings. What do you think I should do?
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 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.
If Graham ever releases a book on investing he should title it, "Boats and Hos."
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.
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.
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'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.
🙌🏼
Instructions were unclear and I invested in bitconnect
Wtf
@@dannybolduc7109 wassah wassah wassah wassahhhhhhhhhhhhhhhhhhhhhhh bitconeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeect
@@DrZbo Even my wife said Issa scam
Lol
Lmaoooo
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.
Duuuuude.. I am currently weighing the pros and cons of this decision irl. Thank you!
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.
Nice. This guy just did all of the math on a question I thought I already had the answer to. Glad I was right.
Thank you for being so in depth for free 👏🏻
You got it!
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
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.
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
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?
DUDE! I logged in just to say your Cartman impersonation was awesome! LOL It really got me laughing. Keep up the good work.
thanks!! :)
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.
5:25 I died. We need theesee more often!
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.
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.
Lol 'blow the difference on boats and hoes' was hilarious to me. I didn't catch that the first time I watched this
This should have put the disclaimer in it on rental property. For personal home loans, the 15 year is definitely the way to go. For rental properties, right now loans are so low that it is a no brainer to use the 30 year loan.
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.
I was going to put a bunch down on my home and my loan officer was like, invest it instead. Love her!
Invest on what?
I am watching this video now, 8months after we bought our first house. It was 350,000 (which in place we live in is dirt cheap, 1bd condos go above $250,000), we had to put 20% down in order to give us 30yr mortgage, with payments only $1145.00/month. This gives us so much cashflow left, that we built a $12k emergency fund and started investing in just after 8months of owning the property. However the plan is to increase the equity in the house maybe by paying a bit more towards principal, just to have leverage for re-finincing and possibly buying an investment property, because the house we live in is not an investment since it does not generate any income for us and selling it would mean we have no place to live.
👍.. at least you have a plan... I am making one extra full payment per year on a 30 towards principal... its painless and helps drop the principal and interest fee, long term...
Same concept has compounding interest when you invest $1200 a year into an account.. but in reverse....
**I am no genius..research your options.." I'm just a squirrel trying to get a nut"...
@@marinevetoneroman7232 That one extra payment a year, automatically drops 7 years off your 30 year mortgage. Congrats!!
All this video says after all the hypotheticals is that floating on debt can make more. However in a down market all of your debt can be called at once when you are spreading yourself over multiple debt-financed assets and you will have to file bankruptcy.
I applaud you on the wrap up for all the Dave Ramsey people👏🏻👏🏻
Thanks... this was good only if you are a person who will invest... I’m a divorced woman and I had to think ahead to a fragile income,.. I got a 20 year loan... waited until I had equity, sold property and with cash bought a foreclosure outright... I now live debt free with no pressure of worrying about keeping a roof over my head... this turned out to be a good thing as housing costs has now escalated.
My friends all envy me... I had no education on this I just accidentally did the right thing.
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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
For some reason, I can't help but hit that like button when you ask so nicely.
Underlying all of this is the assumption is you can reinvest the extra money at a higher rate than you are paying to the loan. That's not very hard in good years but there will be a couple of recessions over 30 yrs life of the loan. It's basically the same as borrowing the money at a fixed rate to invest in some not guaranteed returns, which is probably not for the risk-adverse people.
They are not doing it wrong and there is no "should" or "shouldn't". Everyone's got their own risk appetite.
You also haven't considered the downsides of having debt which can limit other financial choices people may want to do. eg. they may not qualify for the mortgage of a 2nd property if their first mortgage is still outstanding. And if you took a 30 yr loan just to pay it off early in a few years, then that's stupid because you could have just paid off a loan with lower interest - the 15/30 yr terms don't make a difference. The 30 year loan is just good for people who first and foremost care about getting the lowest monthly payments, for whatever reason.
I started w a 30 yr, refinanced to a 15, house paid off, best thing I ever did.
Top notch presentation. Completely changed my mind
Thanks!!
The only issue I see in this video is that GS did not account for the appreciation of the home over time (real estate typically increases in value). He only accounted for inflation with respects of the mortgage (money you borrow now is worth less in the future). But this may be null when you account for appreciation of the property.
This video is making a lot of assumptions...the effective tax rate is super low.
You show your cards when you say something like “with a 30 year loan you can afford $140k more of a house.” I’m guessing this is your next line of reasoning when a customer is debating between the two. And as a RE agent you get a bigger cut from a higher interest rate than a lower one. Kudos.
Second, Dave doesn’t recommend a 15-year loan to simply “pay off your home early.” While I believe you already understand this, the whole point of a 15-year loan at a max payment of 25% of your income is to keep you within your financial means. On top of this, all the while you’re investing 15% of your income.
The Ramsey plan is an entire lifestyle plan. You’re picking apart a single step that’s a part of a much bigger package and giggling about it because you’re not using context and you’re not accounting for future bumps in the road.
If you can’t afford the house you want to buy at a 15-year mortgage with a payment of 25% of your income then you can’t afford the house!
If you do choose the 30-year loan, know that in 15 years you will have paid only half of your house down. Starting that day 15 years from now, you will be forced to pay another 1600 per month again for another 15 years, while the person who stayed within their means will fully own the house, they will have no more house payments, and they will have a nice pile of money stocked up from the last 15 years of investing according to the Ramsey plan.
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.
I always thought getting a 30 and treating it like a 15 was the play, because when it gets rough you can drop to that minimum payment
Debt free living on a home is great, no more true deductions with the new revised tax code in USA, not sure this theory will no longer work, standard deduction for a single person is 12k and for family 24 k; unless you have a million dollar home you will not hit above 24k deductions so Give the facts based on current tax codes. Now it looks like renting and using the extra money to invest will make you richer, less stressful life
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.
Video made sense to me, after reading the comments I'm more confused than before
lol
Lol 😆
I've been so reluctant to watch your videos bc your thumbnails looked charlatan-y to me (idk why) but im so glad i finally came around!!! 🤩
11:00 He should have Did this math on video to show difference.
investments - interest from loans (obviously this may be simplified and not count many things, but this is basically it)
15yr: 732,000 - 127,000 = 605k from investments
30yr: 941,000 - 279,000 = 662k from investments (57k more) -- also, you are flexible here with cash as to where you like to invest unlike one above traps you into investing into the property via equity.
This right here!
You read my thoughts.
no, in both cases the interest cost is included in the monthly payments.. so the final invested amount is already what you would have with the interest paid. You paid that as part of paying off the house, its not being paid separately afterwards. It did cost more in interest but the 15 years of extra investing made a huge difference over it.
I guess the point is that on the 30 yr loan (assuming there was no inflation) you made an extra 200k on investments, plus you were able to spend an additional 150k on your house. so the 30 yr loans sees you with an extra 350k dollars even though 150k of that went to the bank. not counting the ability to buy a second property.
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 RUclips 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 RUclips 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 RUclips. He might as well say he is a professional RUclipsr 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 RUclips every month, that's pretty awesome and if I were you I'd learn how to make some RUclips 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...
Assuming all the calculations were correct, with 30-year mortgage, one makes $209,000 more from investments with cash-on-hand, but paid $152,000 more in interest to the bank with the 30-year mortgage. $209,000-152,000=$57,000. One makes $57,000 more with the 30-year mortgage option. But that's assuming investments with cash-on-hand works out in investor's favor, which is not a guarantee, whereas paying $152,000 more in interest to the bank with 30-year mortgage is guaranteed.
Average of 7% return with stock market might be optimistic. My view of stock market is that it's for people that know what they are doing, for people that could manipulate the stock market, or for people that invest with algorithms (ruclips.net/video/gjVDqfUhXOY/видео.html), not for Average Joes. My guess is, Average Joes probably would not get 7% annual return. People that make money from stock market need to make it from somewhere, there are winners and losers. I suspect Average Joes are losers.
I would choose to go with 15-year instead of 30-year mortgage. Pay it off fast, and then live debt-free.
Another point is, at one point in the video, it was said that the advantage of taking out a 30-year mortgage is that one could then afford a more expensive home. At a later point in the video, it was said that if one could only afford a home with the 30-year mortgage, then one could not afford it. Which is it? I would say, the latter is correct.
huh? The interest to the bank amount is included in your mortgage payment. You can't count it twice. That $209,000 is yours to keep.
@@kevink9365 The 209.000 is "more profit" because of investing the spare cash for 30 years every month. But you're still paying more interest (279-127=152). So, your benefit is "only" 57.000 dollar. However your real benefit will be larger because the 30 year loan will "devalue" more because of 15 years more of inflation.
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 get where Dave Ramsey is coming from. At one point all of his property was obtained through loans. When the banks came to collect he didn’t have the money and lost everything. At least if you own your house outright if you lost all your money at least you still have a place to live. If you have a 300K house and you needed to downsize you can sell it and have the 300k. As opposed to only having paid off half of it, having to sell it and getting left with 150k. There is a great sense of security knowing that no one can take your house or car because you don’t owe anything on it.
He’s also helping people that are not good with finances, so it’s a simple solution to keep your finances safe.
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.
15:05 is the key for this whole video. Most people don't get it. Great simple logical video.
Totally agree. I went for 30 years (but here most people stretch to get a home and go all in 30 years), but I can afford to pay 1.5 or 2 extra payments each month to reduce the period and maintain the payment. This is king, as I am not comitting fully to a big payment, but have the option to do it. The plan is to pay it off in 10 to (best case) 7 years. Yes, the intrest will be higher and the total cost will always be higher, but you have options. Ps: for a 5.3% final rate, 1 extra payment shaves 4 payments in the first year 👌
My mother, and her boyfriend took on a 30 year mortgage, with a survivorship clause, when she was about 62. She owned the home in 10 years. There was no benefit to the mortgage interest deduction, as she didnt make that much. She then got a single room in the assisted live, and sold the home.
Here in México we dont have 30 year morgage 20 years top with 8-9% interest per year.
That's a lot!
My only debt is my mortgage and it’s my goal to pay it off as fast as I can while still investing 15% of my salary.
The peace of mind of not having any debt at all is worth more to me than anything else.
Yeah...
Also here's a trick rent your place and move to a smaller hut 🛖 lots of money rent a smaller place I hope I helped
I bought my first home (fixer upper) in 1996 for $64K. I put $30K down, took out a personal loan for $34K over two years. I also put $50K into it in renovations. It was fully paid by 1998. I'm still living in it. Did I make a mistake?...
I had no money left over for boats and hos tho.
OU812 sorry that wasn’t a thumbs down just my fat fingers 🙈😅
It makes total sense!!
And I love your sense of humor Thanks
You didn't subtract the 152k in interest you paid on the 30yr. So you stated your investment would be 200k higher than the 15yr however with the added interest it's less than 50k difference. Point is buy what you can afford with a 15yr. You want to be debt free at or before retirement. Lastly why get a 30yr on a primary residence and try to pay off sooner? The bank takes the interest upfront regardless.
doesn't need to, because it is the total of paying interest over 30 years, it is unavoidable
and also, the interest is monthly(yearly), meaning you can pay the 1st monthly payment of capital+interest, and then win lottery and pay the remaining capital without interest
Couldn't agree more with you
the advice I was given was get a 30 pay it off in 15
LMAO the bit connect plug once again
;)
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.
Graham’s Comedy act is really underrated
$300,000
+$127,000 +$279,000
=$427,000 =$579,000
$732,000 $941,000
-$427,000 -$579,000
+$305,000 =$362,000
The difference is $57,000
and you get to stay in debt twice as long. Lower payments allowing for leeway month to month is the only advantage worth considering here. But self discipline and an appropriate life style make the biggest difference.
11:04 , in that case why bother buying a house , just invest in S&P
That's right. Rent would even be lower than a mortgage pmt, so you could then invest the difference saved into the S&P. So why even take out a mortgage at all? Just pay rent and invest the difference in the S&P.
If you can get low enough rent (and keep it low for decades), this absolutely makes sense.
@@Mobliz Not if what Michael Burry says about an index fund bubble is true. You might want to research that first.
Do the 15 year if you are comfortable with it. You will see the light at the end of the tunnel faster, and in 15 years you can rent out your current home and buy a new primary home.
Plus the tax changes (higher standard deduction, no personal exemptions, limits to Salt), mean that people are not seeing the tax advantages they used to see.
If you pay it off earlier, you end up making more before 30 years is done, because the years you can invest with no mortgage payment!