30 vs 15 yr mortgage

30 yr and let inflation do its job. He should get a roommate too.
 
The future for classical musicians doesn't look all that good frankly. The New York City Opera just failed. There are fewer classical radio stations. Musicians of the Minnesota Orchestra were just locked out. The Philadelphia Orchestra filed for Chapter 11 a couple of years ago. Doesn't look like a growth industry.
 
harley said:
I skimmed through that whole multi-screen article, and the only thing I saw about the mortgage term was

I'm not going to dispute which came first, because I don't know the answer. But there's nothing inherently evil about a 30 year term. I chose it specifically because I believe that over those 30 years (or however long I live in my home) my interest rate will be made so small due to inflation and rate increases that I'll make out like a bandit over that time. It's a gamble, but no more than investing in equities or bonds.
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Don't read so fast!

"The FHA also started the trend of qualifying people for loans based on their actual ability to pay back the loan, rather than the traditional way of simply "knowing someone." The FHA lengthened the loan terms. Rather than the traditional five- to seven-year loans, the FHA offered 15-year loans and eventually stretched that out to the 30-year loans we have today."
 
Al in Ohio said:
The advent of the 30 year mortgages popularity has not been kind to the finances of the yuppie and baby boomers. It locked them into debt for too many of their prime earning years. 15 year mortgages made more sense until corporate banking greed decided it was better to stretch the financial bondage twice as long as what used to be a healthy norm. ....
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Al in Ohio said:
Don't read so fast!

"The FHA also started the trend of qualifying people for loans based on their actual ability to pay back the loan, rather than the traditional way of simply "knowing someone." The FHA lengthened the loan terms. Rather than the traditional five- to seven-year loans, the FHA offered 15-year loans and eventually stretched that out to the 30-year loans we have today."
Click to expand...

So Al, I'm confused. Was it the greedy corporate bankers or the government (through the FHA) who stretched the terms?

I think the reality is that the banks generally do what the government steers them to do through policy and given a public policy goal of increased home ownership the government steered the banks to provide longer term loans so owning a house would be more affordable. Later on, the geniuses in DC decided to extend home ownership even further, and that was the beginning of the sub-prime meltdown and the great recession.

With with respect to the OP, given the ~100 bps difference in rates, if the PITI is 30% or less of gross income, the borrower's job and job prospects are good and the borrower would still have a healthy emergency fund, I would take the savings of the 15 year loan.
 
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At the risk of introducing some fact into the discussion, this NBER paper from 1956 shows mortgage duration increase happened when the loans changed from non-amortizing to amortizing. Table 67 shows a distinct shift beginning in the mid-30's through the late 40's. http://www.nber.org/chapters/c1331.pdf
 
Bingo Michael thank you. Longer but better source. I figured this was as well known as the fact that b&w TV csme before color. I remember my parents discussing the advent of the newer 30 year fixed loans as a kid. Of course I watch Madmen on TV also!
 
My parents bought their home (where my mom STILL lives & I grew up) in NC, soon after my dad got out of the Army in 1958. They got a VA loan for 20 years, at 3% interest. The payments were around $82. They used the whole 20 years, never made any additional payments and I remember when they made the final payment. They were thrilled....I never mentioned to them they could have paid it off way sooner. In reality, they probably were better off money-wise doing it the way they did, given the low interest rate. Once they could have actually paid it off, they had probably already passed the point where there would have been any significant savings on the interest.
 
From what I was told by my dad.... (who was a RE agent way back when)...

During the 50s to 60s the 'normal' loan was 20 years.... it started to stretch out longer so people could buy a bigger home than with a shorter loan...

Now you can get a 40 year and I looked it up, even a 50 year mortgage!!!
 
I vote for the 30 year loan unless his cash flow is a lot bigger than he needs even with a 15 year loan...


I am also on the side of not paying it down faster until there is a good amount of savings.... not just the normal 6 months of living expenses...

And if you get a really low rate, not paying it down at all.... I do not see rates being this low 5 or 10 years from now... so the market will be paying you a higher rate than you owe....
 
Texas Proud said:
And if you get a really low rate, not paying it down at all.... I do not see rates being this low 5 or 10 years from now... so the market will be paying you a higher rate than you owe....
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That's why I'm on the fence about paying off our 4 1/4% 30 yr loan. My original thought was to pay it off in about 2 years, but not sure yet. On one hand it would be really nice not to have the mortgage, but on the other hand, I'd sure hate to take that much out of my savings and in reallity, there's a fair chance to earn a better return on the money than I'd save by retiring the mortgage.
 
martyb said:
That's why I'm on the fence about paying off our 4 1/4% 30 yr loan. My original thought was to pay it off in about 2 years, but not sure yet. On one hand it would be really nice not to have the mortgage, but on the other hand, I'd sure hate to take that much out of my savings and in reallity, there's a fair chance to earn a better return on the money than I'd save by retiring the mortgage.
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And the problem is that if you pay it off now and rates do go up a lot..... you have no way of getting your low rate back...

I have a low rate 15 year and plan on taking all 15 years to pay it off...
 
Texas Proud said:
And the problem is that if you pay it off now and rates do go up a lot..... you have no way of getting your low rate back...

I have a low rate 15 year and plan on taking all 15 years to pay it off...
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+2 (14 years left @ 2.5% fixed)
 
Texas Proud said:
And the problem is that if you pay it off now and rates do go up a lot..... you have no way of getting your low rate back...

I have a low rate 15 year and plan on taking all 15 years to pay it off...
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+3 (12 years at 3%).
 
30y fixed at 3.75%. Not paying extra (did before j*b became iffy), have no plans to ever pay it off. Will likely move first. But the payment is around $460, so easily affordable under most circumstances...
 
OK ...so son is closing in a week ...we gifted him enough to avoid PMI ...he'll be paying back, though.

How best to structure the loan? Can I set it up some way to maximize his tax deduction opportunity? All interest and then "forgive" the loan when the total amount is paid back?
 
stephenson said:
OK ...so son is closing in a week ...we gifted him enough to avoid PMI ...he'll be paying back, though. How best to structure the loan? Can I set it up some way to maximize his tax deduction opportunity? All interest and then "forgive" the loan when the total amount is paid back?
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Interesting question. My take would be that you can't charge interest on the loan because it wasn't a loan, but rather a gift.
 
I believe you can, but it has to be structured and documented properly, and you have to report the interest just like any other bank. Whether it's worth your while to set all that up is for you to determine, but I'm guessing not.
 
Did the bank ask your son where the down payment was coming from? If not then you can charge going rates as you choose. Any amount forgiven would then be income to him or the balance could be gifted. But if there is documentation that it was initially a gift you are creating a hot mess.
 
The house has to be collateral for the loan in order to allow an interest rate deduction. You have to charge a minimum interest rate per IRS guidelines or you'll have virtual income that the IRS will expect to see on your tax return. You must document the loan to set out these parameters. Have all parties sign it.

You can gift just like normal, $13k/year/person or whatever it is now to avoid estate tax complications.

I guess the best structure would be a very long-term loan, or interest only, to maximize the interest versus principal repayment. Let him pay it off when he wants, or you can gift the principal when it is low enough to fit within the yearly gifting limits and he has paid interest equal to the original loan amount. I think that's what you intended. Seems like that would work for the IRS, though I'm no expert. I wouldn't write the gifting into the documentation though.
 
He decided 30 worked better and he realizes he can pay early.

Animorph got what I was thinking about ....some way to maximize the tax deductibility while balancing payback options!
 
I've done both. I would do a 15year the next time but I am approaching child territory and I am thinking about just renting my way through that until they are the non-destruction age.

Then again if you can pay a modest home off in 15years and live in it for 30, it seems like a good idea. I personally could not live in one place for 30years.
 
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