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Choosing the Right Mortgage

MoneyWise / Rob West and Steve Moore
The Truth Network Radio
February 28, 2022 5:17 pm

Choosing the Right Mortgage

MoneyWise / Rob West and Steve Moore

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February 28, 2022 5:17 pm

One of the first decisions home buyers need to make is whether they’ll take out a 15 or 30-year mortgage. So, if you’re in the market to buy a home, what’s the best option for you? On today's MoneyWise Live, Rob West will talk about the differences and advantages of these mortgage terms and about another option to consider when paying off your home loan. Then he’ll answer your calls and various financial questions. 

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One of the first decisions homebuyers need to make is the 15 or 30 year mortgage. However blessed the 15 year mortgage is paid off quicker and saves tons of interest.

The 30 year's budget friendly costs more in the long run. Is there another option about that today that is on your calls at 800-525-7000 800-525-7000. This is moneywise live biblical wisdom, your financial decision. A recent article on the money he gives the pros and cons of a 15 versus 30 year mortgage.

It's a debate that's been raging for years and it usually focuses on the time of interest you'll save by opting for the 15 year loan.

Whether you're a first-time buyer refinancing or looking to downsize. If the monies in the budget folks often go for the shorter-term mortgage crunch the numbers and you'll see why a 30 year loan for $300,000 at 3 1/2% interest and a monthly payment of $1350 means you pay.

Get ready hundred and $85,000 in total interest over the life of the loan. That would mean two or three year salary to pay the interest alone, your monthly payment is significantly lower than with a 15 year loan. As you'll see in a minute but you're paying for that benefit big time over the years. Okay, let's say you opt for a 15 year mortgage so you can pay it off faster. The same loan again at 3 1/2% interest would have a monthly payment of $2150. That's $700 more a month than the 30 year loan, but the total interest paid over the term of the mortgage would be only $86,000. That's a huge reduction of $99,000 in total interest. No wonder people opt for the 15 if they can handle the payments. Now I know what you're thinking, the interest rate wouldn't be 3 1/2% with a 15 year mortgage. The rate would be lower than the 30 year mortgage. And you're right so let's do the math again with a 15 year $300,000 loan at 3% interest your monthly payment would be $2070 and the total interest paid over the term of the mortgage would be only 73,000, that's even more of an argument for the 15 year loan so the 15 year loan is great, but it does carry more risk than the 30 year year.

Assuming you won't have a serious financial setback that prevents you from making those higher monthly payments, but job loss, medical expenses and other financial calamities can and do happen and they may overwhelm your emergency savings lifestyle creep also happens where you take on new expenses that are difficult to get out of like buying a high-end automobile. Those problems are all made more difficult to handle with a higher mortgage payment, a 30 year note has risk also, but not as much. You also pay a ton of extra interest for that reduction in risk, so how do people decide.

Well, maybe by trying to get some of the benefits from each of the two mortgages. The article I mentioned called this a hybrid approach and it's also what the late Larry Burket suggested many years ago. It's this. Go ahead and get the 30 year mortgage but pay it off like it's a 15 the 15 year mortgage has a lower interest rate in the 30 year mortgage has a lower monthly payment but treating the 30 like a 15 gives you tremendous cash flow flexibility.

Now it's not free, there's a cost to this hybrid plan. If you go with the 30 year mortgage but pay it off in 15 your monthly payment would be around $2170, or about $100 more.

That's because the interest rate would be in our example 3 1/2% not 3% that you might think.

No way until you see that this gives you the option of reducing your monthly payment from $2170 all the way down to $1350. That's 820 more a month to get you through a financial crisis, the COBIT pandemic has revealed in no uncertain terms that the economy can nosedive in a heartbeat. Being able to reduce your monthly obligation by over $800 has real value and could be a financial lifesaver. There's also the peace of mind that comes with knowing you have a significant financial escape hatch. You won't have to worry nearly as much about missing payments and probably defaulting on the loan.

Of course this hybrid approach isn't for everybody. You may have already saved up the recommended 3 to 6 months living expenses in your emergency fund. You may have a greater than normal job security for you a straight 15 year mortgage might make more sense. You can save around $100 a month. After all, but if you're in doubt, consider playing it safe and going with the 30 year mortgage. You can always make extra payments each month, which you should do and I hope that helps you make your next mortgage decision. This is moneywise live the W along with us today and moneywise live on Rob Webster host. This is where God's word intersects with your financial decisions and choices.

We'd love to hear from you in just a moment were to begin taking your calls and questions on anything financial as we apply biblical truth and biblical principles to what you're facing today in your financial life never to call with lines open as 800-525-7000 800-525-7000 little later in the broadcast today will be joined by Bob dollar Goodfriend chief investment officer across Mark global investments. Bob has a long tenure on Wall Street managing literally billions and billions of dollars is also a Christ follower and can help us navigate the markets with a biblical worldview at its core are certainly going to be interesting to hear what Bob has to say about the markets following Russia's invasion of Ukraine. We need to pray for folks in the path of that we also need to be thinking about the financial implications and Bob will shed some light on that coming up a little later in our broadcast again lines open today we'd love to hear from you. Whatever's on your mind. 800-525-7000 were to begin today in Johnson City, Tennessee hey Benjamin, thank you for calling. How can I help you sir Marco my short note about term life insurance policy on 28 and I call me regarding every 11th year.

The premium will increase threefold and is asking me to convert some of it over to a whole lot for universal I'm not familiar with those I will help you get your thoughts on that.

Yeah, we could talk about that.

I think it's first important understand what coverage you have now why you have it, and whether or not the policy you have is the right way to approach it. So you said you're 28 years old is a right yes or okay are you married.

I'm not have a mother disabled mentally okay and so that the primary purpose of these funds that I assume the death benefit would be going to her as the beneficiary for her to be able to maintain her lifestyle. If you were to pass away as I write. You start with that elevated my house and hopefully help with any debts you have are what have you are currently without 85,000 on the housing benefit is 150,000 okay very good and are there any other needs that she has beyond just being able to pay off the house and so forth. Would you feel she relying on you for the stipend or any part of your income currently has her own disability or social security and confidence pretty substantial. I think with what you would get from Montana. If that were to occur, it would get a bill down well enough to where she could live that monthly and hopefully start paying them off on account okay very good so I think in terms of what you should be looking for giving a given. Obviously you know you're a young guy is she you want to make sure that her needs are covered beyond your life and that's really the purpose of insurance. I think a term policy is is the way to go.

You know what Bob 40-year-old buying a 20 year or even half million dollar policy you would be in only about $27 a month so you know it's not expensive. I think the key is you know you want to buy a level term policy where you're paying just for the pure cost of the insurance not try to use it for savings vehicle and recognize that as long as you know, replace it with the new 20 could even get a 30 year policy in a perhaps 10 it what I would do is look at perhaps a new 30 year policy today and then maybe 10 years from now looking at replacing it again, even if the Lord allows her to live long, long time. At some point the others knocking to be a need for that insurance, and the term insurance is the most cost-effective way to do it, especially as a young guy who's healthy building after recognizes you want to get a long enough term so that if something were to happen to you. Medically, that would make you uninsurable. You wouldn't be able to replace it.

You just ride it out with the beautiful part of the level term policy is not only is it pure insurance, but that premium is not going to change for the life of that term and so you can offset this risk.

You know, between now and whenever that term runs out, or the Lord calls her home and you could drop the policy at some point if you were decide to marrying you had a family that you want to think about perhaps adding another policy on top of that, or replacing it you because you want to think about other folks that would be depending upon your income like a spouse or children and for those folks were you wanting to truly offset your income, you probably won't have about 10 to 12 times your salary as a starting point, you may want to go up from there for things like paying off a mortgage or for college education, but I think for your mom. Specifically, if you believe in. It sounds like good logic that this hundred 50,000 is enough. I don't see any reason for that to be a permanent insurance policy where you're adding a savings vehicle because she is for all intensive purposes going to predecease you. And if she doesn't, the Lord calls you home you know anytime soon you would have that term policy to cover that period of time. What's a 20 or 30 years down the road and there's just no reason to spend a lot of money to do that because determine term policies that your rates are to be very inexpensive. Does that make sense though. Okay, what I would be doing at this point is if it's 150,000 is right and how many years are left on that term: 30. And in what what term is on it were, what was it when you got it all 2020 year policy okay very good yeah then you know for the next 17 years that policy. The premium is not in a change at all and so I think you're all set there at some point, perhaps in a couple years. You may want to look at replacing it with a new 20 year policy and as life expectancy increases it's dipped slightly because of the coated pandemic. But normally, at least in prior years. It increases with medical advances in technologies and new medicine as that happens, the cost of the term insurance actually gets cheaper so it's not uncommon for a healthy person to be able to replace a term policy with a new term and actually have the same premium every month, or even slightly lower so I would check that in a couple years, but your lease for the next 17 years that premiums not going anywhere and you've got enough coverage records are okay Benjamin, we appreciate your call.

God bless you and will hope to hear from you again soon. I am is in Fort Lauderdale you're on moneywise life. Go ahead.

I think it's great taking my call. Or I was trying to figure out 5859 this year and I could retire at two I worked for the state of Florida and that would only have like Lenny like 23, 24 and answer my pension won't be decent, but it won't be as high with EFI.

They tell enough 66 and wanted to retire earlier.

That's what I'm calling about, and I want to retire earlier because I'm having some health conditions that are causing me pain and physical pain and felt like I am trying to hang on as long as I could to 52. But my husband is of the belief that I should work tell enough 56 yes yeah very good. Well, you know, I think the key is always going to come down to what is your monthly need and whether your pension bill plus Social Security benefits whenever you did decide to claim those benefits plus begin taking your pension will be enough to satisfy what you need to cover your lifestyle. Tell me about your debt situation give a home mortgage or any other debts. Yeah, we have a mortgage, we all know all that much anymore been here long time. We'll probably maybe 50 or $60,000 on it right now. Okay.

All right, it is your husband work as well. Yet yet outline design okay is he looking to try to retire in the same timeframe died very good.

So you will have when you decide to retire.

Whether it's because you choose to, or you just medically have to you will have his income plus your pension even if you take it at a reduced level plus at some point Social Security correct yet okay and so I think this really is just a function M of really sitting down and studying your budget to see what is our monthly need is there a way we can trim expenses and what income sources will we have in retirement. Ideally, you would hang on until you will get this mortgage paid off because that's gonna take what would likely be the largest expense that you have off the table which just makes meeting your monthly obligations even more feasible.

Based on the income sources that you have so I think the key is know how long can you wait and one option would be for instance, you know, if you waited to get paid out that mortgage maybe you retire at 62 begin taking the pension and you try to wait to take your Social Security because you know, if you take that at 62.

It's going to permanently penalize you about 32% of the monthly benefit amount versus if you wait till 66 or 67 so I think got knife it were me I would sit down with a financial planner and have somebody really will take a look at all the pieces and parts your insurance, your income sources.

Social Security your pension really help you put a plan together that makes sense.

That includes tax considerations then you can pay somebody to do that for their time feel one time and they can really help you look at all these things, but at the very least, I would be looking at your budget, making sure you understand what your expenses will look like when you get to that point because a lot of times.

Some expenses will come off the table. You may not be driving is working close your clothing budget goes down to really study that and then compare that to the income sources you have figure out the right timing so we appreciate you call 800-525-7000 moneywise life.

This is biblical wisdom for your financial journey and our website today is some great featured articles on

How should Christians approach home mortgage debt topic we opened with today we have a great article called the fear factor one to do from Ron blue on what to do if you're too far in debt. Just a host of articles and resources that will help you including one for reasons couples should be joint in their finances.

How you should approach bringing your finances together as a married couple all that and more. When you visit

By the way, when you stop by. I make sure you create a free account that will ensure that you get our moneywise weekly wisdom email that we send that out each Thursday hi we got some lines open today heading back to the phones 800-525-7000 in just a moment will be talking with Elaine in Chattanooga wanted to know about retiring and Social Security was next up is normal in Wellington, Florida, go right ahead question about what anything about that what the pros and cons of transcendent directed IRA and using dolls tobuypropertynowdealing,ofcourse,propertyvalueshighandalsoWheatiesUkrainianwarlordbutwhatareyouthoughtsyeahyeahaself-directedIRAcanbeagreattoolforthebenefitofheraudience.ThisisanIRAthatallowsyoutobuyassetsotherthanmarketablesecuritieslikestocksandbonds.Soessentiallyyoucanholdjustaboutanyassetintheself-directedIRA,butyouhavetoopentheIRAwithaself-directedIRAcustodian.Youcouldthenrollassetsinandthenyouknowtheywouldhelpyoubuytheseassetslikerealestate.Ilikerealestate.Alot.Realestateisanon-correlatedtothestockandbondmarket.It'sagreatwaytodiversifytheportfolioandinmanycasesitwillruncountertothefinancialmarkets.Itdoeswellovertime.Historicallyithasappreciated.Wecertainlyseenthatinthelastcoupleyears,anditcanprovideasteadyincomestreamifyou'vegotarentalpropertyinthegreatpartaboutdoinginsideanIRAisthatanyrentalincomeyoucollectgrowstax-free.OurtaxdeferredwithintheIRAandthenyoucanbuy,sell,orfliptoaccumulatepropertiesinsidetheIRAwithoutpayingcapitalgainsanydownsidewouldjustbethatyouhavetouseaself-directedIRAcustodianscouldbealittlemoreexpensive.Youcan'tclaimanydeductionsfortheproperty.Allexpenses,repairsandmaintenanceyouareusuallypaidwithIRAfundsandyouhavetopayotherstodothattomanagethepropertyforyouandofcourseyouandyourrelativescan'tliveinorrunabusinessoutofthepropertysoyou'vegothavesomebodythathandlesthatforyoubutotherthanthatnormally.Ifthistrulyisforinvestmentpurposestotodiversifyyourportfolioyougottheexpertiseinselectingthepropertiesandyou'vegottheassetsthatyoucouldmoveintotheself-directedIRAtogoinandmakethepurchase,thenIthinkit'sagreatoption.Asapartoronepieceofawelldiversifiedportfolio.DoesthatmakesenseyesmyonlyIwouldsaymyonly401(k)okaymyarmrighttimingaccount.SuresuresoIthinkfromthatstandpointitifyouknowyousaywouldyoulikeforforgettheself-directedIRAforsecond.Let'sjustlookattheassetclass.Wouldyoubebetteroffhaving100%ofyourretirementinrealestateversusstockandbondportfolio.Iwouldsaythestockandbondportfoliohistoricallywilldobetterwithlessexpenseandupkeepintermsofyourrealestateportfolioorarentalpropertysoyouknowifthisisreallyyouronlyassetsforretirement.Iwouldsay,despiteUkraineandwhateverelsewillcome.Andthere'salwaysgoodtobethenextsomethingyouhistoricallyyouhaveaproperlymanagedproperlydiversifiedstockandbondfoliowithalongtimehorizonthat'sgoingtobethebestoverallreturn.That'sallyouconsideringsimilar.IwilltalkmoreoftheyearwillberightbacktothemoneywiseliveonRobWesteuroswisdomforyourfinancialdecisionsyougotonelineopen800-525-7000alittlereminderthatmoneywisemediaandmoneywiseliveorlistenersupported.Thatmeansthatwedowhatwedointhisprogrameachdayonthewebthroughthemoneywiseapp.Allbecauseofyourlistenersupportifyouconsideryourselfapartofthemoneywisefamily.Weinviteyoutobeafinancialpartneryoucandothatquicklyandeasilyonline.Justhadtoourwebsitemoneywise.organdclickthedonatebuttonyoucangivethroughthemail,you'llfindtheaddresstherethrough.Toll-freenumberifyou'dliketotalktosomeoneonourteamorthroughheronlinesecureform.It'satax-deductiblegift.Ifyoumakethegifttomoneywise,anot-for-profitministryyoucandoallofthatagain.Onherwebsitemoneywise.orgjustclickdonate.Thanksinadvancebylet'sheadbacktothephones.ThelanesinChattanoogahiElaine,goodafternoonHuckIhopeyouhereateightatworkandIwillmakeCannonBeachheresonine.Security.WhenIcontinuetorateSocialSecuritywithcontinuingknowtheonlywaythatyourSocialSecuritywouldcontinuetoincreasebyworkingisifyouaremakingmorethenyoumadeinthepast.Soyourbenefitisbasedonyourhighest35yearsofearningsandifyourearningsthisyearreplacesomeofthoseloweryearssomewhereinthose35yearsofyourhighestearnings,thenthatwouldcauseyourbenefitstoincrease.Butapartfromthatitwon'tbecauseyouwalkedinyourbenefitwhenyoustartedtakingSocialSecurityat67,you'refreetocontinuetowork,butunlessyou'rereplacingoneofthoseprioryears,thenyou'renotcanincreaseyourbenefitatallandthataddedincomecouldmeanhigherincometaxesandhigherMedicarepremiumsoyoujustneedtolookatthebigpicturetomakesurethatitmakessense,butpurelyfromabenefitstandpoint.Elaineyouunlessyou'rereplacingaloweryear,you'renotreallyhelpingyourselfintermsofthatmonthlybenefitcheckthatoneintheratethatthewhaleokayyeahverygood.Sothenyouyeahyouareimprovingthatcheckandwillcontinuetodosoasyouearnmorethanyouhaveinoneofthoseprioryears.You'vegotthecost-of-livingincreasesontopofthat,buttheIthinkattheendoftheday.Itreallyjustcomesdownto,areyoufulfilledwithwhatyou'redoingisLordcallingyoutosomethingelse.Obviouslyyou'vegotgoodhealthsoI'dsayjustkeeponkeepingon,andweappreciateyourgoaltodayverymuch.GodblessyoutoSt. Cloud,MinnesotahiStephen,howcanhelpyouRobyet.Sowhathappenedlastweekwithmywaterheaterleakingalloverthegroundin1985IgotagoodrunbutI'mjustwonderingwhattheprocessforinsuranceisIalreadyopeneduptheclaimantstuffandwegotitall.Cleaningoutrightnow.Lettingitdry,butI'mjustcuriousthatlikewhattoexpectfromtheinsuranceadjusterWindowsEcomandwhatotherquestionsImightwanttoasksowhattoexpectaverygoodsteelwaterheaterleaksareveryannoyingandtheydoalotbecausequiteabitofdamageyouwhenanytimewaterisinvolved.Othergenerallycoveredbyhomeownersinsurance,lessthedeductible.Ofcourse,soyoureallyjustneedtoknoweach.InsurancecompaniescanhaveadifferentprocessandproceduresojustmakesuretheytellyoureallyclickwithGod.ClearlyIshouldsayaboutwhatyouneedtodoitprobablyinvolvesasanextstep,gettingestimatesbeyondthewatermitigationandthatyou'redoingrightnowIwouldgetStephenatleastthreeestimatesonrepairingthedamageandputtingthehousebackasitwas,youcanshowthesetotheinsurancecompanydon'tnecessarilytaketheleastexpensiveoneyouwanttomakesurethematerialstobeusedarethesamequalityasbefore,soyouknowifyou'rereplacinghardwoodsyoumakesureit'sthesamebenefitsandOakvillereplaceitwithapineandviceversa.Carpetingshouldbeofthesamequalityaswell.SoIthinkyoujustwanttotakealookatthat.Makesureyouaretrulyyourreturningittotheplacethatitwas.Andthekeyisgoingtobeinwhetheryougetupabovethedeductibleastowhetherthepolicywillactuallykickin.SoI'mgladyoureportedontimelybasis.Thebiggestthingisjustgoingtotrytotakecareofitasquicklyaspossiblesoyoudon'thaveanykindofmoldissuesyouwanttomakesurethattheydoathoroughjobandthingthatcleanedupincludingcheckingthewallsandsoforth.Butapartfromthatit'sreallyjustamatteroffindingtherightcontractorandgettingtheinsurancecompanytoapproveitsoyoucangettherepairscompletedokay.Thankyouallright,Stephen,Godblessyou.WeappreciateyourcalltodaytoBedford,IndianaheyLily,howcanhelpyoumoneywise.YoucouldsayhundredthousanddollarsonmycurrentlikeallIcreditcardandalsonotonlythat,butmyincomenearly13,000workingthebaremaximumthatIcanpossiblywork.ByandsoismakesureIheardyoubecausethisdoesdoesn'tsoundquiteright.DidyousayhundredthousandhundredthousandyeahI'mjusttryingtoconfirmthedebtnumberthatyousaidyesthat'scorrect,howmuchisit100,000100,000okayandyousaidthat'sallincreditcardsoristhatdifferenttypesofdebtoncreditcard.SorryLily,wellIthinkthenextstepifififallofthatistrueinyouryou'reonlymaking13,000andyou'renotabletopaytheminimumpaymentsonthathundredthousanddollarsindebt.Sowhatyou'regoingtoneedtodoisreallygetsomewisecounseltohelpyounavigatewhereyougofromhereyoucanandwanttoworkveryhardontryingtogetyourincomeup.Youprobablywanttocheckwithourfriends.AChristiancreditcounselors.orgtotakealookatthattherecanhelpyouworkthroughyourbudgetandthey'lltakealookateachofthecreditcardseetheycanhelpyougetthoseinterestratesdownsothatyoucankeepthosecurrentscutupthecardsneverusethemagainandworkmethodicallytotrytogetthosepaiddowntheoldcreditcardscanbereallydangerousifwe'renotcareful,allowingustospendbeyondwhatwehaveinthewayofprovision.Sowhentheybecomesomethingthat'sdetrimentaltoourfinanciallife.WeneedtogetridofandyouknoweverythingcomesbacktoLilyandthisisimportantforallofustounderstandfirstrecognizingGodownsitallwerestewardsofwhathe'sentrustedtousandthatwehavetolivewithinhisprovisionandthatmeanswegottahaveaplan.Whateverprovisionhehasprovidedforus.Thatdoesn'tmeanwedon'ttrytoimprovethatalongtheway.Butwhatevercomesin.Weneedtofindcontentmentandawillingnesstolivewithinwhichmeansweneedtohaveaplanthatrecognizeswhatourexpensesareandstopspendingwellbeforetheresourcesaregone.SowehavemarginsowecansaveforthefutureandifwehavesomedebtsoreallyyoureachouttoourfriendsatChristiancredit.Lordletthemworkthroughbudgetwithyou.TakealookatcreditaccountsandseewhattheycandotogetthisgoingintherightelectionandbyallmeansnoWillie,thanksforyourcallwillberightbackonmoneywise

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