Out of all the mortgages out there, a 15-year mortgage will likely save you the most amount of interest. 15-year mortgage rates are almost always lower than 30-year fixed mortgage rates. Further, because the mortgage fully amortizes across a 15-year duration, you will likely pay off your mortgage sooner than if you had a 30-year amortizing mortgage.

Ever since I purchased my first property in San Francisco in 2003, I’ve actually preferred adjustable rate mortgages (ARMs). I preferred an ARM over a 30-year fixed mortgage because the interest rate was always lower. Further, given my consistent belief that we’d be in a permanently low interest rate environment, it didn’t make sense to borrow money on the long end of the curve.

In a permanently low interest rate environment, when an ARM resets, there’s a good chance it resets to a similar rate or even to a lower rate. Further, the average homeownership tenure was only about 7 years in 2003. Today, post-pandemic, the average homeownership tenure is closer to 10.5 years.

But even still, taking out a 30-year fixed rate mortgage makes no sense if you plan to sell your home after 10.5 years. Strategically, you want to match your fixed rate with your homeownership tenure to save the most amount of money.

But after so many years of taking out mortgages, refinancing them, and paying them off, a 15-year mortgage is probably the best mortgage to get, if you can afford it.

The ideal mortgage amount was $1,000,000 before the Tax Cut & Jobs Act was passed for 2018 and beyond. The reason why $1,000,000 was ideal was because that was the mortgage limit for where you can write off the interest. Today, that ideal mortgage amount is $750,000 because $750,000 is the maximum mortgage you can take to be able to write off the mortgage interest.

Back in 2002, a $1 million mortgage cost around $50,000 to $65,000 a year in interest expense given mortgage rates were 5%-6.5% for a 5/1 ARM or a 30-year fixed. Multiply the annual interest expense by three, and you get $150,000-$195,000, the minimum annual income recommended to take out such a loan.

In 2021, a $1 million mortgage costs around $20,000 to $30,000 a year in interest expense given mortgage rates are now 2% – 3% for an ARM or for a 30-year fixed. Interest rates plummeted to all-time lows due to coronavirus fears. However, interest rates are finally ticking back up as the economy reopens.

Multiply the annual interest expense by three again and you get $60,000 to $90,000, a far cry from the $150,000 – $195,000 in income you originally needed to make! As a result, buying real estate looks attractive in 2021+ because affordability has gone way up! You no longer need as high of an income to afford the same property.

If you’re focused on paying off your mortgage, good for you. It’s generally always good to pay down debt. However, I’d also like to share with you the biggest downside to paying off your mortgage that may surprise you.

It’s been six years since I paid off my rental property mortgage. It was a mortgage for $464,400 I took on in 2003.

For the first year after paying off my mortgage, I felt great. But after that, the satisfying feeling of getting rid of debt wore off.

Perhaps the reason why the feeling was so ephemeral was because there was no congratulations card or fancy French Laundry dinner celebration. The only thing that changed was the extra ~$2,500 a month in cash flow, which went straight to savings or investing.

Before taking on this mortgage, I experienced an eerily similar feeling of ambivalence in my early 20s. After working for 60 – 70 hours a week from 1999 – 2001, while saving 100% of every bonus and 50% of each paycheck, I started thinking: what’s the point of it all? 

Maybe I was experiencing a quarter life crisis back then. What I did know was that my enthusiasm for working in finance faded after the September 11, 2001 terrorist attack.

In 2003, with my lack of enthusiasm, I was *this* close to leaving San Francisco for Honolulu until I found a 2/2 condo overlooking a park in Pacific Heights for $580,000. Once I took out the $464,400 mortgage, my motivation to work hard shot through the roof!

Suddenly, my work felt more meaningful because if I stopped paying my mortgage, I’d lose my $116,000 down payment and trash my credit score. Without dependents, finally, I had something tangible to work hard for.

Refinancing a mortgage today is a smart move because interest rates have fallen to all-time lows due to the coronavirus pandemic. Investors fled from stocks and into the safety of bonds, thereby pushing Treasury yields and mortgage interest rates to the lowest they’ve ever been. This post will teach you how to get the lowest mortgage interest rate possible to save money.

Thankfully, homeowners have gained a huge amount of equity since 2012. They aren’t going to foreclose or short-sale for nothing. In fact, I think 2021 and beyond is a good opportunity to buy real estate due to rising affordability and an underperformance in real estate prices compared to the S&P 500 in 2019 and 2020, which was up 31% and 16%, respectively.

I’ve refinanced multiple mortgages across multiple properties since 2003. I also recently refinanced my mortgage in late 2019 and got a new mortgage for only 2.125% in 2020. Here are my strategies for how you can get the lowest mortgage rate possible.

When there are mortgage market abnormalities, we must take advantage to get the lowest rate and best terms possible.

Currently, there are two mortgage abnormalities today to be aware of:

1) The average 15-year mortgage rate is way below the average 5/1 ARM and 7/1 AM rate. Therefore, you should take advantage.

and

2) The average 30-year mortgage rate has been lagging behind while the 10-year bond yield has been going up. Therefore, the 30-year fixed rate mortgage looks very enticing as well.

As a result, if you are looking to refinance your mortgage or are buying a house, get either a 30-year fixed or a 15-year fixed. Both are offering the best value out of all the mortgage products that current exist today.

Credible is my favorite place to refinance a mortgage or get a new mortgage. You’ll get real, no-obligation quotes from competing lenders in minutes. Take advantage of the current mortgage market abnormality!

So you are shrewdly considering investing in real estate outside your state. Good news. Yes, you can get a mortgage in one state to buy a property in another state. Many people are now considering moving to a lower cost state due to the acceptance of working from home.

Due to the extended lockdowns, I’m more motivated than ever to relocate from San Francisco to Honolulu. I have been looking seriously at Honolulu property since 2015 and I’m finally seeing some great deals in the area.

My logic for moving is this: If I’m going to shelter-in-place for months on end in the future, why not shelter-in-place in a nice property that has plenty of land, lots of indoor space, a pool, a hot tub, a garden, good weather, and is close to the beach?

When you have kids, you crave for as much space as possible to enable them to run around and have fun. Hearing their screams of delight is so wonderful.

Given we have enough passive retirement income to sustain our lifestyle, there’s really no need to remain in expensive San Francisco.