We fell short of our Fall Fundraiser goal of 2,500 donations. Help us catch up ⏩ Give Now
Ask Money

Take out a longer mortgage

Chris Farrell May 27, 2010

Question: I am about to sell my home to move closer to my work location and my son’s school. I plan to put 50% down on a $250,000 house. I can afford a 15 year mortgage (I currently have a 20 year mortgage for $150,000), but am considering a 30 year loan so that I can save more money for my son’s college expenses. He’ll start college in about 6 years. Given how few people own half their houses, is the added future interest an adequate offset to improve my cash flow for other parts of my budget? I am divorced and cannot count on my former spouse to pay for our son’s education. Mary, West Richland, WA

Answer: I would definitely lean toward taking out the 30-year fixed-rate mortgage to ease your monthly cash flow burden.

I think the trade-off of upfront financial relief so that you can save money is well worth the long-term prospect of increased interest payments. I would invest the savings conservatively since 6 years is not that far off. (Believe me, the day your son goes off to college will come much faster than you think.)

Here’s the thing: The trade-off of short-term savings versus long-term cost isn’t writ in stone–or the contract. Assuming there’s no prepayment penalty with the 30-year mortgage (there shouldn’t be, just make sure there isn’t when you shop for a mortgage), you can always accelerate your mortgage payments. You could eventually turn it into a 20-year or 15-year mortgage on your own if several years from now your finances allow it.

One last thought: You clearly want to put down a big down payment. But would it be better financially if you put down, say, a third instead of half? This way you would have a larger cash savings cushion and less money tied up in the house? Again, you can always put more money toward aggressively paying down principal later on.

The final point is a comment: I hope your ex does help his son out financially with college. Yes, you’re divorced but he’s still a parent and college is a valuable way for parents to prepare their children for the world of work.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.