[Porsche-O-Phile]

Get the 30. Unquestionably.

Why you would EVER want to commit to a higher monthly nut is absolutely incomprehensible to me. If the SHTF (job loss, medical bill, whatever) do you want a monthly minimum that you have a reasonable shot of being able to still make by scraping together income from part-time jobs, etc or a high payment that will almost certainly land you in foreclosure - and if that happens you lose all your equity and value made to that point by committing to the shorter term?

This is so simple it's almost not even worth discussing.

Obviously make certain there's no prepayment penalty.

Additionally, given the direction that interest rates are certain to go soon (and what's going to happen to the value of the dollar with high inflation) I would think that you may very well get to a point on the 30-year where you actually pay less in real dollars than on the 20 since the last ten years worth of dollars are likely to be so much more devalued than the ones in the first 20 years. This may very well offset the benefit of any faster pay-down of Principal. Obviously you should create a few models to verify this and see, but when I did it a year or so ago it was very convincing. If inflation over the next 30 years exceeds 4% on average per year (which it almost certainly will - handily) l'll save almost 1/4 of the value of the entire note with respect to how many "real dollars" I pay over the lifetime to pay the thing off. I strongly believe that in a couple of years 4% annual inflation will be a wet dream and the annual average 2010-2040 is going to be MUCH higher (more $$$ in my pocket if so).

I find it very helpful to make sure I'm paying just as much attention (if not more) to what happens in years 15-30 as in years 1-15. Most people don't. They tend to get bogged down in current conditions and aren't comfortable making projections on what pricing/rates/inflation are going to do. I'm not sure why as it's pretty obvious.

Short answer - commit to the lowest payment and longest term you can to minimize exposure and maximize benefit of dollar devaluation. Paying it off early is generally a good approach but I'll leave it up to you. I've read several recommendations from economists advising against making overpayments right now precisely for the reasons I've described right now (why pay more with today's dollars when you can pay with tomorrow's that are worth half as much?) The merits/detriments of this and the predictions associated therewith are another discussion perhaps - I personally split the difference and overpay by enough on each payment to effectively throw about 1-1/2 extra payments worth at mine each year... I'm hedging my bets... Worst case inflation stays low for a few years before exploding and I've spent a few extra bucks worth of today's dollars towards the Principal reduction. I see it as a win-win. Even if I do end up shaving a couple of years off the back end (when I'd see the maximum benefit from inflationary effect), I see nothing wrong with being in a position to tell the bank to go take a long walk off a short pier that much sooner. I'll still have derived plenty of dollar devaluation benefit and be sitting in a very nice spot in a few years.