Why You Can Lose Millions Settling for a 15-Year Mortgage

Saving for retirement is an essential commitment, even during difficult financial times like the current pandemic.

Source: News Max Finance


Unfortunately, making sure to put away enough money to live comfortably in your golden years is often easier said than done.

With the stock markets so volatile and unpredictable due to COVID-19, traditional means of saving for retirement, such as IRAs and 401(k)s, which are insufficient retirement plans to begin with, are becoming even less desirable, less profitable, and, in the cases of employer-sponsored 401(k)s, less common, as more employers cut back those benefits or limit employment to contractors only.

A Different Approach

However, with some ingenuity and the right mortgage term, it is simple to create a much more financially comfortable retirement.

It might seem contrary to what you’ve likely heard about mortgages, but a simple secret to financial freedom is to take out a 30-year mortgage instead of a 15-year mortgage. While a 15-year mortgage requires you to pay back less interest, it can also lose you millions of dollars of compounding interest. Opting instead for a 30-year mortgage is the smartest and simplest way to build your financial future.

Currently, the housing market is seeing some of the lowest mortgage rates in history, all aimed at compelling people to make the move into a new home.

When it comes time to decide between a 15-year mortgage and a 30-year mortgage, do not be fooled into thinking a 15-year mortgage is the best option, despite the promise of less simple interest.

Change Your Perspective About Saving for Retirement

After being told for so many years by so many people—friends, family, the bank, even financial advisors—that a 15-year mortgage will help you own that house faster and pay less simple interest, it can be difficult to reorient yourself to a new way of thinking.

But if you eventually want true, abundant financial security in retirement, there are two important factors to consider:

  1. If you know you can afford the higher 15-year mortgage payments, that is all the more reason to take out a 30-year mortgage.
  2. If you take out the 30-year mortgage and put the monthly savings, relative to what you would have paid for a 15-year mortgage, into a Secure Compound Interest Account, you can make millions over the long term.

In other words, getting your money to make you money as soon as possible, even when it comes to the mortgage, is essential to achieve your best and most secure retirement.

The Science of Compounding

Here is an overview of a hypothetical situation to show how this strategy works:

$300,000 Mortgage

$300,000 Mortgage

15-Year Mortgage at 3.5%

30-Year Mortgage at 4%



Mortgage paid off in 15 years with $2144 in cash flow at year 16

$712/month remaining from what would have been paid for the 15-year mortgage was allocated to a Secure Compound Account for the first 15 years of the mortgage, which pays for the remaining 15 years of the mortgage through compound interest alone, leaving you with $2144 in cash flow at year 16 as well

Total simple interest paid: $86,037

Total simple interest paid: $215,609

Final results:

  • Paid off house
  • New cash flow from the 16th year forward of $2144 for investing, or other uses
  • No substantial retirement income generated and no retirement investments made as a result of the 15-year mortgage term
  • No nest-egg
  • No compounding during 15 years of mortgage

Final results:

  • Paid off house
  • New cash flow from the 16th year forward of $2144 for more compounding or other uses
  • 15 additional years of compounding from the start of the mortgage
  • No additional money out of pocket
  • Up to $1,000,000 nest-egg at age 65 and $120,000 in tax-free annual retirement income

While it’s true a 30-year mortgage requires more total simple interest paid over the long term, letting money work for you in a secure compound account, from the beginning of the mortgage, more than offsets that simple interest. One path is focused on saving interest and the other is focused on accumulating interest.

The Takeaway

In other words, if you can compound the price difference between the 15-year monthly mortgage payment and the 30-year monthly mortgage payment, your money will be making you money, generating millions of dollars of compound interest over time and setting yourself up for the retirement you’ve dreamed of.

Always be compounding!

Curtis Ray founded SunCor Financial, LLC and serves as the President and CEO. In 2014, Curtis was introduced to the world of financial planning & insurance.


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