What do you like, shorter or longer mortgage and why?

[myself]

Quote:

Originally Posted by laurinsane If you can afford to make the monthly payment, go with the 15 year. You'll save yourself a ton on interest. If not, you can always make extra payments towards your principal with a 30 year fixed. Doing Bi-weekly payments with you mortgage cmpany can actually save you somewhere around 5-8 years on the life of your loan on a 30 year.

So can making an extra payment once a year, without having to pay an bi-weekly payment plan fee.

[ERD50]

Quote:

Originally Posted by myself So can making an extra payment once a year, without having to pay an bi-weekly payment plan fee.

I'd say consider the 15 year if it is a significantly lower interest rate.

But be careful with these comments on 'savings' using bi-weekly payments, or extra payments - you need to take into account the opportunity cost of that extra money/time that you invested in the mortgage.

It's not all gravy. It might still be a good idea for you, but it is not all gravy.

-ERD50

[Sandy]

When I refinanced 5 years ago, took the 30 year. Many neighbors who were refinancing at the same time took the 15 year option.

The 30 year plan, while a tad higher rate, gives us flexibility. On average, I send in an extra 200-300 each month, greatly shortening the time of the loan, expecially if done at the start. However, recently we hit a tight stretch - and I have not sent that extra payment in 2 of the last 3 months. The flexibility is quite welcome at this point. Even though I expect things will sort out soon, and we will be back on track, one less pressure point is good to have.

BTW, with the extra payments we typically make, we will still end up without a mortage faster than the neighbors who took the 15 year plan and are paying only the required amount.

[myself]

Quote:

Originally Posted by ERD50 I'd say consider the 15 year if it is a significantly lower interest rate. But be careful with these comments on 'savings' using bi-weekly payments, or extra payments - you need to take into account the opportunity cost of that extra money/time that you invested in the mortgage. It's not all gravy. It might still be a good idea for you, but it is not all gravy. -ERD50

When I was referring to extra payments, I was referring to the difference between setting up a bi-weekly payment plan (which typically has associated fees), and merely making an extra payment every year.

Significantly lower interest rates is quite important as you said.

I personally don't think of it as truly "saving" if you pay less interest. To me, saving money is very concretely defined as "depositing funds that would have been spent on something else into an account to earn interest". When I mention "saving interest" on this board, my though is merely interest that you didn't have to pay as opposed to money that you may have put into "savings".

Likewise, "opportunity cost" has it's own risk/reward. One of the reasons that I like FIRECalc! It let's you see what could possibly happen without having to wait until it happens!

[Art G]

I had originally gone with the standard 30 year mortgage, but when I refinanced I switched to a 15 year, which I have since paid off. However, I would say the answer depends on your age and where you are in life. If you already have say 10 years left on your mortgage and are in your 70's and could use additional income, then I'd have to consider whether refinancing another 30 year mortgage may not be such a bad idea. Lower your payment quite a bit and let your heirs deal with it in the end, which would probably be the scenario anyway.
Now, on the other hand, I don't know if this has already been discussed, but what are the thoughts out there on a reverse mortgage? Additional income and a guaranteed house for the rest of your life. What are the downsides? Thoughts?

[free4now]

It depends on the yield curve and what's available. Sometimes the rates for 15 year mortgages are about the same or even worse than the rates on 30 years. Right now my favorite mortgage site emortgages.com says 30 year is 6% and 15 year is 5.375%. That's enough of a difference that I'd seriously consider a 15 year. But strangely their 20 year loan is at 6%.

This is the issue: because 15 year loans are more rare, they don't get the price competition that 30 year loans get, so you are less likely to find a great rate.

If the rates are within 1/8th or maybe even 1/4 I'd go with the 30 year for flexibility, and try to pay off early if that is your intention.

Especially heading into a recession, you want to minimize your monthly expenses.

[Urchina]

I agree with most of the posters here that a 30-year fixed gives you the most flexibility. If you want, you can turn it into a 20 or 15 or 10 year loan by making prepayments. But if you want, you can just keep making the regular payments and use other cash for other investments. It also makes it more reasonable to consider using the house as an income property later (if this is a possiblity or interest for you), since a 30-year loan tends to have lower payments than the other loans.

[honobob]

At today's rates I would definitely vote for a long term mortgage. My first purchase in 1978 was with a 15 year 9% mortgage because that was all that was available at that time. It's been paid off a long time but when it started the payment took almost 2 weeks of my gross pay! If I had a thirty year I would be paying the same payment with a little over a half days pay and of course I would have refi'd to a much lower rate that would take less than a half days pay.

I did refi two properties to 15 years when the rates were low and I wasn't considering early retirement and I have two new 30 year mortgages that I will keep. I wish I had never done the 15 year because the savings aren't that much and I'll get more out of a dollar now than later. Of course since 4 of these are rental properties I'll be paying fixed 2003-4 mortgages with fully inflated 2020's rents. So a lot depends on where your money will be coming from in the future. As rents go up and rates are low in the future I'll probably refi up to the monthly rent and take out chunks of equity for fun money.

[jazz4cash]

Quote:

Originally Posted by honobob At today's rates I would definitely vote for a long term mortgage. My first purchase in 1978 was with a 15 year 9% mortgage because that was all that was available at that time. .

I think this is important to put a historical perspective on the current rates which are ultra low when viewed from a distance yet we still quibble to get that extra 1/4%. My 1st loan was 30yrs @10.375 plus 1/4% for PMI in 1983. Typical rates at the time were 11.5-12%, but I qualified for a state sponsered mortgage bond program. I think it was a 90% LTV loan.

[honobob]

Quote:

Originally Posted by jazz4cash I think this is important to put a historical perspective on the current rates which are ultra low when viewed from a distance yet we still quibble to get that extra 1/4%.

I agree, 6.75% was the rate in 1968 My purchase in 1987 was at 12%. I would have been here arguing that rates will never go below 9% again. Ya get old ya learn from experience.

[free4now]

Wow, as a relative youngster I didn't realize mortgage rates were 20% at some points in the 1980's. At some point inflation is going to force the fed to increase rates back up, and then watch housing values drop.

Rate Companion : interest rate links

[W2R]

Quote:

Originally Posted by free4now Wow, as a relative youngster I didn't realize mortgage rates were 20% at some points in the 1980's. At some point inflation is going to force the fed to increase rates back up, and then watch housing values drop. Rate Companion : interest rate links

I remember looking at a house in Carlsbad, California in 1979 or 1980. The builder was offering a 23.5% loan. I wanted to do it anyway! But the payments would have been impossibly huge. We couldn't afford it, and my ex noticed a foundation problem so we decided against it. We ended up buying the cheapest house in San Diego using a veterans loan.

When loan rates go down, payments go down and so buyers qualify for larger loans than they would have previously. They can pay more for a home. I think this stimulates the real estate market.

When loan rates go up, it's pretty hard for many buyers to afford any house at all.

[prgsdw]

I tend to believe that my home is more than an investment and provides me with some sense of security. After a while, owing the mortgage was gradually building up anxiety and worry in my mind. So we originally borrowed 30 years at 7.125%. After 18 payments we refinanced to a 15 year mortgage at 5.375%. However, then rates kept right on falling and after 29 payments we refinanced again to a 3 year home equity loan at 4.9%. We paid that off after 23 payments. So we took advantage of the lower interest rates to increase the payment and own the home faster.

Now to make up for that to some degree, we're investing the mortgage amount each month towards our early retirement.

[jazz4cash]

Quote:

Originally Posted by prgsdw I tend to believe that my home is more than an investment and provides me with some sense of security. After a while, owing the mortgage was gradually building up anxiety and worry in my mind. So we originally borrowed 30 years at 7.125%. After 18 payments we refinanced to a 15 year mortgage at 5.375%. However, then rates kept right on falling and after 29 payments we refinanced again to a 3 year home equity loan at 4.9%. We paid that off after 23 payments. So we took advantage of the lower interest rates to increase the payment and own the home faster. Now to make up for that to some degree, we're investing the mortgage amount each month towards our early retirement.

These posts remind me how much things have changed from when I was a youngster buying my 1st home.

When interest rates were in the mid-teens and above, "seller financing" became very popular.

Refinancing used to be a huge deal. The 'rule of thumb' was you should only consider refinancing if you could improve your rate by 2% or more and of course you were not selling anytime soon. I think competition has reduced rates and closing costs to the point that many will consider refinance on less than 1/2% drop in rates.

[Walt34]

Quote:

Originally Posted by Art G Now, on the other hand, I don't know if this has already been discussed, but what are the thoughts out there on a reverse mortgage? Additional income and a guaranteed house for the rest of your life. What are the downsides? Thoughts?

It seems risky to me, but it depends on what other resources are available. For someone with $5 million in other investments, the risk is low, as a house is pocket change. We very much like owning the home "free and clear" of all debt. But if disaster strikes it is a source of income.

The risk I see is one of needing the equity for some other purpose like nursing home care not covered by insurance. If that equity has already been spent we're out of luck. We certainly have all we need and most of what we want. (I suppose "wants" are never satisfied.) But I'm not yet 60 - in 20 years the equation may be different.

[aaronc879]

I just bought my first property. I've been having a hard time deciding if I should pay off my mortgage early or max out my retirement savings. With an income of only 44K I can't do both. I don't like debt and don't like paying interest but i've done the math and determined that i'll be better off in 15 years if I just make my normal bi-weekly payments for 15 years and max out my 401K and ROTH. The compounding interest is just too powerful to not take advantage of. I'm hoping to retire in 21 years (age 49) so a 30 year wasn't a consideration for me. I can't stand the thought of how much interest I would pay on a 30 year mortgage even on an inexpensive property like mine.

[prgsdw]

Quote:

Originally Posted by jazz4cash I think competition has reduced rates and closing costs to the point that many will consider refinance on less than 1/2% drop in rates.

Yes and in our case, the first refinance from 30-15 year mortgage was with the same company so we qualified for an "express" program. I believe it cost us a total of ~$680. The final refinance to a home equity loan that paid off the mortgage was "free" from out local bank (for the origination of new money). So costs were really not that much of a consideration vs the interest savings (since we end up with the standard deduction anyway).

[tibbar]

I want a 30 year loan and then pay extra on principal every month. I love to play with calculators and see what a difference any extra principal payment will make. On our loan, if I had added $4.04 to make an even $600 payment (P&I only)I would have saved $4252.77 in interest and would never have missed the $4.04 a month.

[Zoocat]

The first house my ex and I purchased was by assuming a loan. It was a 7.5% loan and we put about 10K. Rates were around 11% then. What a great deal it was! Remember those good ole days? Can't assume any loans no more.

[Animorph]

As long as the rate is about 6% or less and it's fully deductable I'd just as soon take out an infinitely long mortgage and invest the full amount in stocks. It's even almost do-able if you refinance every 5 years or so. I'm sure some of us are assuming only 6% market returns for equities, but I'm a little bit more optimistic. With a 30 year mortgage and even some refinancing, this is definitely a long-term situation.

Once you pay off the initial mortgage your options for deducting mortgage loans are limited, especially for AMT.

Dan