When should borrowers prefer a 30-year mortgage over a 15-year mortgage?

Borrowers should prefer a 30-year mortgage over a 15-year mortgage when the discount rate exceeds the mortgage rate because it enhances their financial leverage and affordability.

The discount rate reflects the opportunity cost of capital or the return that they could earn on their investments. If this rate is higher than the mortgage rate, it suggests that the cost of borrowing is relatively low compared to potential investment returns. By opting for a 30-year mortgage, borrowers can benefit from lower monthly payments, allowing them to allocate excess funds to other investments with potentially higher returns. This can enable them to accumulate wealth more effectively while maintaining liquidity for different financial opportunities.

Choosing a longer-term mortgage also presents the added advantage of having increased cash flow flexibility in monthly budgets. Borrowers may find it easier to manage their overall financial situation, as the lower monthly payment associated with a 30-year mortgage can make homeownership more accessible. This strategy is particularly beneficial in an economic environment where the expected returns on investments are higher than the cost of financing the mortgage, promoting better overall financial health.