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I took a 30 year 5/1 mortgage. It was about 2 percent less than the 15 year and I believe it was set up as a "sucker bet."
My thoughts were that because it was a simple interest loan and because I would pay extra every month, that I could make out well with it.
Even though the rate could jump on me (it went up the first year, but fell each of the following years), I felt that the long term would serve me best in case of emergency - while the low introductory rate gave me a chance to knock off a LOT of interest and principle immediately.
My payment amount went down every year. The long term dropping it more so - which when I piled on the monthly extra payments made the loan balance shrink even faster.
I eventually paid the loan off in 11 years.
Last edited by blktoptrvl; 01-20-2017 at 09:38 AM..
Those are the same people who say buy a car in cash.. You can finance a used car for 60 months at 1.9%. If you have $20k to spend on a car you're much better off from a financial standpoint, to invest that money hopefully earning 5+% on your money and just pay down the loan that's 1.9%.. inflation alone says that's a better use of the funds.
Some people just can't stand the idea of any debt no matter what the rate, even if its .0001%. It has nothing to do with what could be a better use of funds, you simply can't argue with them, all debt is bad, even if you are using it as leverage to bring in extra $ each month you otherwise couldn't obtain without the debt.. its still bad to them.
Why can't I buy the house outright? Because I'm not rich and don't have $70K laying around. My income will stay the same till I die. I have my husband's pensions, SS and I have a part time job. The job is the only thing that might change but I don't depend on it to survive. I plan on updating the home including plumbing, electric, etc. I'm going to hire a landscaper and a general contractor to add some curb appeal to this almost 50 year old house. A new roof will be going on as soon as I get the mortgage. I will do my best to keep the house in good shape. Homes appreciate rapidly in my area.
I'm paying $950 a month rent (and for my area that is cheap for a 2 bedroom condo). My house payments even with taxes and insurance will be approximately $700 a month. My adult son will be living with me for another year or so and he will be paying me rent so, if I can, I will pay extra toward the principal each month.
How much is the pension income and how much is the SS income? Does the pension have a COLA? If not, be very careful. While your principal and interest payment does not go up with inflation, other costs will (property taxes, insurance, food, utilities, etc.) and having increasing costs on a fixed income could pose a problem in the future even though your principal and interest payment itself does not go up with inflation.
Also how much have you budgeted for future medical costs?
And finally, if you didn't have the income to save any substantial amount in your working years, why will you suddenly be able to handle a mortgage? What has changed?
In the last few days I have heard several people say that 30 year mortgages were for suckers or just a plain bad idea. I realize if you get a 15 year mortgage that your home will be paid off faster with less money paid for interest, however you will have a larger payment each month. Not everybody can afford that and what about "older" people like me who are planning on buying a small home in the next few months? Although I just turned 62 last month and I am in pretty good health with no major health issues what are the chances that I will live to 92 and be healthy enough to stay in my home? I'm not too concerned about having my house paid off before I die. Hopefully my kids who are 31 & 29 will have their own homes in the next 10 years plus neither one really wants to stay in Florida.
After living in rented condos for the last 4 1/2 years and paying such high rent I will be happy to have my own place with a much smaller payment (I'm getting an excellent deal on my late aunt's house). I would like to use some of that extra money I will have each month to set up a savings account for my one grandchild and maybe travel.
Sure I will paying more for the house due to the higher interest but why is that such a terrible thing at my age? If I was younger and had a husband (I'm widowed) I would definitely consider a 15 or 20 year mortgage so that my house would be paid off while I was in my 40's or 50's and I could enjoy an early retirement with a paid off house.
So I get a 30 year mortgage, die in 20 years and the house goes to my heirs who can do what they want with at that time. I've paid less each month so I can enjoy my retirement years. Why is that so wrong economically?
You'll probably have to move out in 20 years. A 30 year mortgage builds up about one-third equity on the initial balance. If you plan on living there beyond that time, the tax deduction for the interest will be paltry by that time. The main reason to get a 30-year is to lower your payments since you should expect your income to fall soon.
It's all about cash flow. If you take 15 year mortgage you might not make it. Ignore interest rate. Sometimes it's too small to count. Use standard deduction is better.
I want to die in year 1 of a 30 year mortgage which I will take out every time my equity reaches a certain point. If you are in an appreciating market it is silly to bury tens of thousands of dollars in your home every year.
Why can't I buy the house outright? Because I'm not rich and don't have $70K laying around. My income will stay the same till I die. I have my husband's pensions, SS and I have a part time job. The job is the only thing that might change but I don't depend on it to survive. I plan on updating the home including plumbing, electric, etc. I'm going to hire a landscaper and a general contractor to add some curb appeal to this almost 50 year old house. A new roof will be going on as soon as I get the mortgage. I will do my best to keep the house in good shape. Homes appreciate rapidly in my area.
I'm paying $950 a month rent (and for my area that is cheap for a 2 bedroom condo). My house payments even with taxes and insurance will be approximately $700 a month. My adult son will be living with me for another year or so and he will be paying me rent so, if I can, I will pay extra toward the principal each month.
Having moved out of Florida, I really have to question your figures. Do NOT go by what the current owner pays. The SAH amendment means that a lot of houses are undertaxed. Also, make sure the insurance estimate you are given includes windstorm and flood insurance. Any mortgage will require that all appropriate insurance be in place. A 50 year old house will likely have all sorts of code issues that increase your windstorm rate.
There is a downside to homes appreciating rapidly. In Florida especially, they can go down in value as fast if not faster. There is a high transient population and just one hurricane can shift the value of entire communities.
Finally, do not underestimate the possibility of insurance cost and taxes increasing at a rate that far outpaces inflation. After Wilma there was a huge migration of seniors in southeast Florida out of state, largely because the costs were becoming unmanageable.
There's nothing inherently wrong with a 30 year mortgage, as long as you're OK with paying a slightly higher interest rate and the mortgage doesn't have any penalties for paying it off in 10 or 20 years.
With a 30 year, you can still make additional payments against the principle, such that it becomes in practice a shorter term mortgage, while you still maintain the ability to make smaller payments if you run into a short term tight financial situation.
This was exactly what we did and why we did it. Our 30 year was paid off in 18 years but we always had the flexibility of making a lower payment when we needed to.
I want to die in year 1 of a 30 year mortgage which I will take out every time my equity reaches a certain point. If you are in an appreciating market it is silly to bury tens of thousands of dollars in your home every year.
You'll probably have to move out in 20 years. A 30 year mortgage builds up about one-third equity on the initial balance. If you plan on living there beyond that time, the tax deduction for the interest will be paltry by that time. The main reason to get a 30-year is to lower your payments since you should expect your income to fall soon.
If the tax deduction is necessary for you to keep the home, I'd argue you probably can't afford the home! It is a pretty small benefit unless the mortgage is very very large or you have other significant itemized deductions.
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