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No one (well almost no one) lives in one place that long today. It is basically an amortization method for stretching out the payments. I think the average time one stays in one house used to be seven years. Now I was recently told it was as low as 3-4 years. I'm not sure I believe that but it isn't long anymore.
Interesting!
Do you have a source to cite?
The only people I know who are in a house 3-4 years have only had the house 3-4 years. I have had the same neighbors for 15 years to the right, ten on the left, 25 across the street. My area has very low turnover, so some area somewhere has quick turnover!
I think the average time one stays in one house used to be seven years. Now I was recently told it was as low as 3-4 years. I'm not sure I believe that but it isn't long anymore.
Interesting, your comment prompted me to do a bit of searching and I came up with the following article put out by the national association of home builders: NAHB: How Long Buyers Remain in Their Homes Granted it is 3 years old, but it shows the difficulty in answering the question "how long does the average homeowner stay in one house". Depending on what your exact criteria were, they got vastly different answers, but the shortest one was 10 years. That is, taking a large sample of people, after 10 years, half were still in the same home. So they took the length of time of the average person (thus the median), rather than the average length of time (the mean)
It also found, if I'm reading it right, that if you stay in one house for more than 3 or 4 years, you have a good chance of staying a lot longer. In other words, most people who move faster than 10 years move in the first 3 or 4 years.
Interestingly, it also found that over the period from 2001 to 2009, the trend was just the opposite of what you stated, that people are tending to stay longer in their homes. Also, over the period from 1987 to 2007, a different set of questions showed that both first time buyers and trade up buyers are staying in their homes longer more recently.
Whether the article is correct, or how it has changed since 2009, I don't know, but they were the only study I could find quickly that actually cited official sources instead of just being peer answered questions.
The 3 - 4 years most likely came from career changes most Americans will be averaging in the future. This and the fact of downsizing and companies relocating is where the poster might of come up with this. See link:
We plan on staying where we are until we no longer can function in the home. With our twins the wife is doing the SAHM thing. We curently are 12 years into a 22 year note and are debating whether to pay the mortgage off. I was always brought up being taught that savings were something for emergencies and not to be squandered (depression era parents). We all know how hard it is to put savings back once you take it out.
They say the only good debt is mortgage debt, although that was before equity lines and refinancing to take money out.
There are so many variables that I really think whether or not you pay early, extra or off it is best suited for the individuals needs. A lot of my friends have refinanced from 30 to 15 year mortgages, this has been a national trend this year. If people do stay put in their homes there should be a lot of homeowners in great shape in 15 years.
This discussion has switched to whether it is prudent to pay your house off. The original question was whether the OP should take out a 30 year or 15 year mortgage. As has been stated, you can pay either off early. It just depends on what level of risk you're comfortable with. Personally, I have a 15 year, and am accelerating payments. I'd be doing the same if I had a 30 year. The latter is probably a safer option. I'm comfortable with the higher degree of risk (i.el potential job loss, unexpected emergency, etc.)
Do you have a source to cite?
The only people I know who are in a house 3-4 years have only had the house 3-4 years. I have had the same neighbors for 15 years to the right, ten on the left, 25 across the street. My area has very low turnover, so some area somewhere has quick turnover!
Experienced real estate agents I trust have given me this information. Speaking of our own situation we have owned 11 homes, and planning to move again. So perhaps we are diluting the averages.
As to the original question, 15 or even 10 years is fine if your budget will allow it. But if the 30 or even 40 year mortgage are available for just a small difference in rate it allows for a cushion in the event of economic downturns. You wouldn't want to be caught in an underwater loan that you can't get rid of or possibly tossed out of your home with no place to live. That is to say I would rather live in a house than under a bridge somewhere.
One can take out a longer term loan and simply add to the principle so the added interest is probably negligible. You have to ask yourself "do you feel lucky" in taking out a shorter term loan and then being put into a situation where you couldn't make the payments and potentially being foreclosed on?
Stated differently, we have a 15 year mortgage at 3.5% we took out last year. But IF we live here beyond the next few months we will probably liquidate the loan within 3 years or less by making additional payments. Just make sure that your loan doesn't penalize you for making early payments or an early pay-off. Back in the 1980s, it was not uncommon for there to be a pay-off payment before the loan expired. In those days the interest rates ran as high as 18%. We had a 12% loan and refinanced it prior to moving to 9% and avoided the early pay-off penalty. So far as I know few banks or lending institutions include that provision any longer. It was always a rip-off because they could.
And one final thing. Try to avoid getting into the PMI insurance trap. That is just money down the drain. You need to put down 20% of the value of the home and this will go away. It is possible to have it waived after you get below the 80% threshhold but you would probably need to have it reappraised at your own expense. Some people have no alternative as they have no down payment or little down payment. Some loans are being made with as little as 3% down. In the heady days leading up to the housing melt-down people, totally unqualified, were getting into homes with nothing down and no ability to make the payments. All of us are still paying for that debacle even today.
So 15 year or even 10 year if you can afford it will provide some savings over the 30 or 40 year loans is the answer.
Experienced real estate agents I trust have given me this information. Speaking of our own situation we have owned 11 homes, and planning to move again. So perhaps we are diluting the averages.
Not endorsing either but the original comment I quoted was "take the 30, invest the rest (as in the lesser amount of the payment) and the original poster noted very few people actually follow through and do that. In the insurance game it is the same thing, everyone says term ins. and invest the rest yet very few people actually do that, they just spend the money.
I think in the insurance game, buy both one whole life (in case insurability becomes and issue in the future) and have a term policy for the larger benefit while you actually need it. Young guy with kids/mtg might get 500K whole life (builds cash value, has a lifetime guarantee if the payment is made) then maybe a 1mm 20 year level term. Yes the term will be very expensive when he needs to re-up it but maybe by then his assets exceed 1mm and the insurance need isn't so high (kids graduated, house paid off etc).
Have a stroke, brush with cancer, hepatitis, diabetes and boom you are uninsurable! Whole life looks really good to those people now!
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Whole life looks really good to those people now!
