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If you were to purchase a home today, which mortgage option would you take?
1) Purchase a home with a minimum 5% downpayment on a 30 yr mortgage and hold onto your cash?
2) Put down a much higher downpayment and try to do a 15 year mortgage (higher monthly payments, might be tough) to bring down the principal balance faster to cover yourself in case the home loses value over the next few years?
Last edited by suzco; 05-03-2008 at 09:14 AM..
Reason: Thread moved to Real Estate forum
How long do you plan on living there? If it is more than 5 years don't worry about the price decline. If you really like the house and you feel what you are paying is worth what you are getting, take the house. If you plan on living there less than 5 years, don't buy the house. If you take it with a high down payment and have much higher payments you are only hurting yourself. Energy, food, and everything else is rising in price. Take your current budget and add at least 25% to your expenses. That is a realistic safety net in this economy. (The number might even be higher)
Moral of the story--- If you want to move again in the near future and are worried about falling values, don't buy at all. If falling values don't scare you and you do buy, take the 30 year.
Socal,
It really depends on your situation. Declining market values are only one issue here.
I think in general, in my opinion, a 15 year loan is better WHEN it is realistic. The interest savings are staggering and would be better placed in other investments. If the 15 year loan payments are "making it tough" then you shouldn't do it. Rise in other prices is too great right now and you don't want to put yourself in a position where you can't make YOUR mortgage payments. You don't want to be one of the many heading into foreclosure.
What you do completely depends on your own personal situation. I would suggest getting a really good financial planning book and make a long term plan for yourself. That may help you to decide which route is better.
Why not get the 30yr mortgage, and if/when you can double up on the pymts instead of having to make that bigger payment all the time?
I'd also put down more than 5%...why do you want to hold onto cash...are you worried about a job loss etc...just keep enough for 3-6months in case of job loss and you should be fine.
I have purchased 4 houses over the past 13 years (military) and I always got a 30 year mortgage but then I always made extra principle only payments and paid off my houses early - 12 years or less. I chose to do 30 year loans because if for any reason I wind up short on cash, I would have the lower payment obligation if I needed it.
I wouldn't to lock myself into the 15 year loan then have a money problem or something.
I put down about 3% on all the house I bought. The first was a VA loan where I didn't have to have anything down. The other 3 were conventional and I had a good credit union who didn't makeme pay PMI even though I only put 3% down. My interest rate was a little higher but not much.
Good luck!
Oh yeah, find a bank that doens't charge a prepayment penalty and don't fall for that scam where they charge you to set up biweekly payments. You can make biweekly payments yourself without paying someone to do it.
Quote:
Originally Posted by shenane
I have purchased 4 houses over the past 13 years (military) and I always got a 30 year mortgage but then I always made extra principle only payments and paid off my houses early - 12 years or less. I chose to do 30 year loans because if for any reason I wind up short on cash, I would have the lower payment obligation if I needed it.
I wouldn't to lock myself into the 15 year loan then have a money problem or something.
I put down about 3% on all the house I bought. The first was a VA loan where I didn't have to have anything down. The other 3 were conventional and I had a good credit union who didn't makeme pay PMI even though I only put 3% down. My interest rate was a little higher but not much.
Good luck!
17.8% of your monthly payment is applied to principal on 1st payment.
24% of your monthly payment is applied to principal on year 5.
31.6% of your monthly payment is applied to principal on year 10.
45% of your monthly payment is applied to principal on 1st payment.
60% of your monthly payment is applied to principal on year 5.
80% of your monthly payment is applied to principal on year 10.
You should analyze the amortization tables of a 30 yr vs. 15 year before making a decision. Realize that on a 30 year, the amortization is stacked heavily in the lender’s favor. Unless you add extra payments to principal, you will be on a painfully expensive 30 year amortization which applies most of your payment to interest until you are 19 years into the loan! Only by the 19th year will 50% of your monthly payment finally be applied to principal. However, on a 15 year amortization, 50% of your monthly payment will be applied to principal by the 2nd year.
Now even if in you increase your monthly payment to match what a 15 year monthly payment would have been, you will still pay thousands more in interest because of the dreadfully expensive 30 year amortization.
Keep in mind that your interest rate determines the ratio of interest and principal. An interest rate of 4.62% on a 15 year amortization will automatically start you out at > 50% of your monthly payment being applied to principal (1st payment). Conversely, a 30 year at 7.5% will start you out at only 10% of your monthly payment applied to principal.
In short, a 15 year is better for the mortgagor and a 30 year is preferred for the mortgagee. If you can afford the monthly payment on a 15 year term then the choice is obvious.
Sadly, rates on 10 year mortgages are actually higher than a 15 year term (as banks want to discourage borrowers from taking "low profit / low interest" 10 year loans). 10-year fixed mortgage rates in the United States Friday
Last edited by simcity; 05-04-2008 at 02:57 PM..
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15 year builds rapid equity, 30 year pays bank huge interest.
