15 or 30-year mortgage?

Right around thirty-two, most people ask this question: should I get a 15 or 30-year mortgage?

When my wife and I wondered this we had some of the personal-finance challenges licked (hedonic adaptation, envying the Joneses, etc.). A fifteen-year mortgage felt like the responsible choice because delayed gratification is almost always worth it.

However, there was opportunity cost to consider. If we chose the lower monthly payments that go along with the longer payment period we could invest the difference. Using a selection of actual returns of the S&P500 over the last thirty years here’s what the number said: it doesn’t matter.

Subtract total house payments (extra interest) from total investment gains and the total difference is twenty-thousand dollars.

Fifteen or thirty? Doesn’t matter.

Another question that pops up for parents is paying for college. It just so happens—and I double-checked the math—that a fifteen-year mortgage started when a child is three, finishes when that child turns eighteen and may head off to college. Mortgage payments become tuition payments. Clean and easy.

This doesn’t matter either.

All that matters is choosing from good options. With hindsight one option will be better than the others, but that prediction is impossible.

A lot of time we want THE BEST. Early in life, I compared televisions, computers, and cars on all the listed attributes (I hadn’t read Sutherland). Now I try to think about what the good options are and pick one.

Much of life is too complex to optimize but not so complex to neglect.