Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
You should only take out a 15 year mortgage if you(in my opinion):
1. Have no other debt, no car loan, no credit cards, no student loans, etc...
2. You have a liquid emergency fund of at least 6 months living expenses
3. You are fully maximizing your 401k to get the matching contributions
If you havent met the 3 above, you should go with a 30 year mortgage. First pay off all your stupide debt(cc, car loan, etc), build up an emergency fund, than maximize 401k. Once that is achieved you can than pay extra to the 30 year fixed mortgage and pay it off sooner.
I have seen many clients take out a 15 year term, but due to the higher payment it forced them to incur debt down the road. One nice thing about a 30 year mortgage is that you can pay it off in 15 years. A bad thing about a 15 year mortgage is that you have to make that payment each month.
Good points Victor. I considered the 15 year, but in the end decided I would do a 30 year and make extra payments. Obviously I lose out on the better interest rate, but I have the flexibility in case something unforseen happens down the road.
So is 4.75% really great? I haven't dealt with mortgages before, but am considering it and just wanted to know the norm before listening to what the mortgage people say. Never know if they are telling me the truth. Also, I'm beginning to think 30 year with no early payoff penalty might be better if you are worried about payments, better to be safe maybe. Thanks.
Meh - If people were really smart they would be taking a 40 year loan at these rates. Makes zero sense to take a 15 year and pay it of asap. Financailly niave I say.
With regards to paying down your mortgage here are my thoughts.
1) Always have a good amount of liquidity on hand $$$ first and foremost.
2) Paying down your house can be part of your "investment" strategy. Basically, if you have a 5% mortgage...every dollar you pay off is like investing in a 5% no-risk security which right now is a good deal but in general you need to weigh that decision with your other savings etc.
3) When I make extra payments, it doesn't lower my future monthly payments....it just means I will have the house paid off faster. Are you sure this will be the case for you or are you actually in some sort of arrangement where they recompute your monthly payment?
Mathguy, I understand that it will not re-adjust my monthly payments, I just want the house paid off faster...
So what your saying in #2 is "I have such a good rate, do other things with your money like savings/bills and things like that.." Am i reading you right?
Remember this is my first house, and I am not very money investment wise...I do have savings and 401K....
Meh - If people were really smart they would be taking a 40 year loan at these rates. Makes zero sense to take a 15 year and pay it of asap. Financailly niave I say.
It's o.k. to say someone is naive, but put something behind what your saying...Why would you take a 40 year loan...give some backing to why you say that....
Last edited by Green Irish Eyes; 04-09-2010 at 10:35 PM..
Reason: Deleted rude comment
So is 4.75% really great? I haven't dealt with mortgages before, but am considering it and just wanted to know the norm before listening to what the mortgage people say. Never know if they are telling me the truth. Also, I'm beginning to think 30 year with no early payoff penalty might be better if you are worried about payments, better to be safe maybe. Thanks.
Yes, 4.75% is really great, and already the market is going up. There is no "norm", it is whatever interest rate is at the time you lock in your mortgage. We locked in a bit too early. Had we waited another month, we could have gotten 4.30% - and also could have had someone else buy the house. You get the best rate at the time.
Also note that there are 2 MAIN ways to doing pre-payment (without penalty) and there are significant differences:
Some mortgage companies only permit an early payment - i.e. you get to make a regular mortgage payment. It does not recompute everything, it does not change your interest, it is like taking a "payment coupon" from the "back of the book" and paying it now. (Get comfortable reading an amortization table.) Sometimes, the bank does not penalize you for making that payment and sometimes it does. It's all in the language.
The mortgage conditions I wanted specifically were to permit me to make principal only payments with no penalty. Each month that we submit a principal only payment in addition to the mortgage payment, the entire amortization table gets adjusted.
So now for a layperson's explanation of amortization tables:
When you take out a mortgage, the interest and payment allocations are computed for the entire length of the mortgage.
So your payments are allocated as follows (eg):
1. $999.98 interest, $.02 principal
2. $999.96 interest, $.04 principal
Your first payments are paying down the interest only, basically; and the principal is barely being touched.
When we make a principal only payment, our amortization table changes this way:
1. $999.98 interest, $.02 principal (Principal balance - of x)
(extra payment applied) (principal balance $X - 200.02)
2. $938.00 interest, $962 principal
(This is very simplified for concept purposes.)
Quote:
Originally Posted by Obrero
Meh - If people were really smart they would be taking a 40 year loan at these rates. Makes zero sense to take a 15 year and pay it of asap. Financailly niave I say.
Quote:
Originally Posted by chucksnee
It's o.k. to say someone is naive, but put something behind what your saying...Why would you take a 40 year loan...give some backing to why you say that....
Preparing for the future by paying off debt is not naive. Not owing money to others is not financially naive, it's financial responsibility. If money in a bank is earning only 1.5% even in long term CDs, then letting too much sit in the bank is not smart. Letting that money work for you by paying off a 5% mortgage IS smart. Why should I pay the bank 5% when I can only get 1.5% by letting it sit in the bank?
And don't start on the paying today's expenses with tomorrow's dollars. My ex-husband was a firm believer in that and he took us into bankruptcy! I don't buy what I can't afford today. Tomorrow's dollars aren't always more than today's. Besides, I want to OWN my house.
NY Annie, one thing you didnt point out was the 5% mortgage rate is tax deductible. If you are in a 25% tax brachet, the true cost of the mortgage is 3.75%.
Also, the reason CD's, savings accounts, money markets are paying very low is the Fed Fund rate is at 0 to .25%. In a year or 2 when the fed fund rate is around 4 or 5% those accounts will be paying much more than what the mortgage is costing. Only right now are those accounts paying less.
A while back, I did a back of the envelope running of the numbers, comparing the difference between our 2003 refi to a 15 year note, and what would have happened if we'd kept the 30 and thrown the $150/month difference in the mutual fund instead. Because of the flatness of the financial markets during that time frame, we were something like $20K ahead in terms of net worth by using the 15 year note and paying down principal instead of putting that money into a flat market.
As for the holy mortgage interest deduction, it's vastly overrated if you don't have high interest & property tax payments or otherwise have high dollar itemized deductions. You need to subtract out what you would have gotten for filing standard in order to see the true value of mortgage interest.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
