Day 6 of The 14-day Passive Income Challenge - 15-year vs 30-year Mortgage - Chaim Ekstein

[Music] welcome to day number six of the 14 day passive income challenge yes we made it to day six hashem imagine today we're going to discuss 15-year mortgage versus 30-year mortgage what is better and anything in between or having a house free and clear stay tuned and let's discuss it most people think that having a house free and clear they call that the american dream that's like wow i have a house free and clear is this really the best way to do it or is it better to have a mortgage and if it's better to have a mortgage or if you have a mortgage because you have to you have no option what kind of mortgage is best suited for you 15 years or 30 years or anything in between or should you make extra payments or should you not make the extra payment so let's discuss this so again we're going to discuss person a versus person b and for this example we're going to discuss having a house worth one hundred thousand dollars and taking a mortgage of one hundred thousand dollars i know that it's not realistic i know that you cannot take a hundred percent mortgage in most of the situations but let's discuss that just for illustration purposes person a year number one through theory taking a mortgage of balance starting with 100 000 we're also going to assume that the payment is about 750 a month and person a is doing a 15 year mortgage so that means after 15 years what is the mortgage balance for person a exactly zero because he paid off the mortgage but from the other side he didn't save any money so he's left without a penny to his name but he paid off the mortgage and let's also assume for this example that the mortgage interest rate that we're talking about is three percent interest rate okay now we're going to visit our friend person b the same 30 years the same 100 000 mortgage in the beginning the only difference is that person b took a 30-year mortgage not a 15 year mortgage which that means a few things number one means that the payment that he's paying is only 500 a month instead of 750 a month and also after 15 years there is still a balance in the mortgage i don't know exactly how much and it's not important for this conversation to know how much all i'm gonna assume that it is let's say sixty thousand dollars and only after 30 years the mortgage balance is going to be zero so far who is in a better situation person a or person b and of course you tell me of course person a because after 15 years he's and clear versus person b still has a sixty thousand dollar mortgage balance that he still needs to make payments on and you might be right if that's the only thing that you're looking at but there's much many many more things to look at for example person b pays 500 a month versus person they paid 750 a month so if you want to compare apples to apples you have to assume that person b is saving 250 a month so we can add another column here for person b which is going to be let's call this savings and that's going to be 250 dollars a month question is after 15 years how much money is going to be in the savings account or wherever person be saved is 250 a month and i give you some information i can sit here and make calculations with you there's no point of doing that you can go back take out your only financial calculators and make your own calculations but all i can tell you is that if we're talking about a three percent uh interest payment that person a and person we are paying for the mortgage and we're talking about a three percent that you can earn on your savings account which i'm not going into where doesn't matter just conceptually so that means after 15 years if the mortgage balance is 60 000 your savings account will also be 60 000 exactly on the button which means that person b can go with one click or with one phone call and pay off the mortgage if he so desires which also means if he doesn't earn three percent but earns five percent he's going to be left with more than sixty thousand dollars which also means that if the the interest that he's paying is not three percent but two point five percent he's gonna be left with even more you get the point besides the tax benefits there's a big arbitrage and the same is true of every kind of mortgage in between that you take less than the maximum length of time you're giving up something for it so it's very important to consider when you discuss your leverage while planning your passive income foundation you should understand the difference between having a large mortgage a longer mortgage or a shorter mortgage and a smaller mortgage thanks for including me in your passive income journey and i hope to see you tomorrow again you