This is almost always optimal, even if you can easily afford a shorter term loan. Banks usually give a better rate for a longer term loan.
I think, only in rare circumstances, like rates being unusually high, such that they will almost certainly go down.
Locking in rates costs money. Nobody will give you a reduction in risk for nothing. Often they are a bad gamble, because if you're in a long term loan, even if the rate is variable, the length of the loan itself provides the averaging to de-risk that.
Most people work with spot rates for all sorts of stuff they consume. You don't get to negotiate a 30 year rate on steaks, milk or gasoline. You can still buy those things when prices are low and average things.
You didn't say if that's the case now (I don't actually know one way or the other).
If you look at mortgage rates over a very long period, that will help. You definitely can't just compare "now" to "last 5 years."
A 15-year payment is higher, of course, but after 15 years you've paid it all off. After 5 years, much of your payment is going towards principal, not interest. You can do this calculation in a spreadsheet.
The question is: when rates go up, at what point does the new 30-year monthly payment equal the old 15-year, when rates are lower?
> If budget allows, you can make additional payments towards the principal.
I said that. Most people will not, but YMMV.
There’s no free lunch.
Sure in an ideal world we would all have 6 months of living expenses in an emergency fund plus multiple independent income streams so that getting laid off would be only a minor inconvenience. But the reality is that most homeowners have few other assets and just one job, so they have to plan within those limitations.
At any given instant, your monthly payment for a 15-year will be higher than for a 30-year. You're right that if you can't afford it, then you shouldn't do it.
If you can possibly afford the payment for a 15-year: in 15 years you'll have a monthly payment of zero, because you'll have paid it off. After a few years, you'll have started paying off the principal.
And, of course, if rates go up (as they have), then in a few years the monthly payment for the 30-year will be approaching what you would have paid a couple years ago for a 15.
Rates going up in the future is irrelevant if you have a fixed rate mortgage, so I don't know what point you're trying to make there.
OK: assume you locked in a 30-year loan 2 years ago, because it didn't even occur to you to get a 15, or you couldn't afford it.
Now, you're set in your place for another 10 years. You didn't expect that kind of stability, but time just flies.
So in 12 years, you'll still need 18 years to finish paying it off. There's no point in refinancing, since rates are higher now.
Had you gotten the 15-year, you'd be within 3 years of zero mortgage payments. If you're in high tech, quite likely you'll be earning much more after 12 years, and that monthly payment will be no problem.
You're right, the "quite likely" does do a lot of work here. You're taking a risk. No argument there.
> if you have a cash flow problem in 5 years and default
That isn't a problem in practice. Most banks don't want to foreclose and they'll restructure your loan, as long as you're not a deadbeat. And in 5 years, you'll have paid down the principal, at least a little. More than you would have with a 30.
At the moment, my mortgage is dramatically lower than inflation. I would take almost unlimited credit at this interest rate and not pay it back early; several hundred thousand was a no-brainer.
Many or even most people would just spend the extra money, not "put [it] in the market and earn significantly more than my mortgage rate." The default rates after the 2008 crash proved that.
EDIT: The parent post is a modern sophisticated financial theory, and it's absolutely correct.
Your great-grandparents, who lived through the Depression, might have a much different take: "Debt is bad. Do not have any debt."
That's irrational, for sure. It probably resonates with you on some level, though.