Someone asked me why 30 year amortization financially makes sense.
25 year AM VS 30 year AM.
Don't I save more money if I were to choose 25 years?
No - You are so wrong.
Your broker does not have financial background to explain why 30 year amortization is recommended? Find a broker that has a good understanding about how money works.
You think you are saving money? No. Working with Financial Incompetent brokers can cost you a shit ton of money
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Here's my answer
I do understand what you are saying. If you are just looking at the cost perspective, yes you might be right. Other brokers may not be able to explain as to why 30 year amortization make sense.
If you want a lower payment, then 30 year amortization makes sense so that you'd have a lower payment every month, and i'd argue if you are planning to invest in the stock market, why don't you contribute the difference?
Let's do some math here. Your mortgage is $500K at 5% rate.
25 year am - $2908 per month (total interest paid over 25 years = $372407.48)
30 year am - $2668 per month (total interest paid over 30 years = $460643.22)
Mind you, today's money will be worth less. I did not calculate the future value of money due to inflation. I am trying to simplify to help you understand.
$88236 savings - (1)
25 year am $2908
30 year am $2668
Difference = $240 per month
Let's use 10% return yearly on S&P 500 to simplify it. 10.26% annual return since 1957 (Do your research),
25 years to grow, compounded rate of return.
total value of your investment $298598.31 (2)
(2)-(1) = $210362 investment return at 25 year mark.
$210362 return in 25 years.
Which is the better option now?
Many people focus on "the cost", rather than "total investment return/saving" at the end. Some may argue, but I've never seen anyone that built wealth focusing on "the cost." Wealthy individuals i have met always focus on "generating more income."
People don't really understand how much it's costing them working with financial incompetent brokers.........getting a mortgage isn't a sprint, it's a marathon.
You have to be well-prepared for the future. The problem is, lots of brokers are incapable of explaining high-level financial planning strategies.
JD Lee
Mortgage Broker (AB)
Submortgage Broker (BC)
Mortgage Agent Level 2 (ON)
M: 1-587-968-1490