You and your partner are both 35 years old. You have recently found the home of your dreams and need to decide which type of mortgage to take on the house: 20 years or 30 years. The home you intend to purchase is $300,000 and you will have $60,000 to put down on the home after you sell your current home. You can obtain a 20 year mortgage at 3.5%, and a 30 year mortgage is offered at 4.0%. Assume that taxes and insurance add $700 a month towards your monthly payment.
You have saved $97,000 today. You plan to retire at age 65. You can earn an 8.5% after-tax annualized return on your investment over the next 30 years. You have an extra $4,000 in your monthly budget to use towards your mortgage or save for retirement. When you retire at age 65, you want to have the largest retirement nest egg possible and a paid-off home.
Which mortgage should you take to give you the largest retirement nest egg?