Mortgage debate: 30-year vs. 15-year

re: Mortgage debate: 30-year vs. 15-year

drayk — Fri, 17 Jul 2009 09:16:26 GMT

Consider that needs and tastes change as one matures. My wife and I moved to a ranch from a two story home. We finance for thirty years three years ago and refinance recently to a better rate for 27 years. We considered the 15 years or less but decided to spread our risk by putting money into another investment. We realize we may move yet again or take the ultimate journey. We considered insurance for that possibility and the effects of inflation and taxes. We did not think there was a good rule of thumb on this topic, every ones life cycle is different. A home can be a great investment, a nice tax shelter, enjoyable and often a painfull experience.

re: Mortgage debate: 30-year vs. 15-year

P Owens — Mon, 13 Jul 2009 07:52:08 GMT

As a past Real Estate Broker, I recommend a payment of no more than 28% of your income for mtg, principle, interest and HOA, whatever length of time that works out to be. Those were the stats we used 35 years ago and people weren't losing their homes at record rates because of this. Then you can pay off extra as you can but you don't have to if you can't afford it that month. My husband and I paid ours off in 10 years. Saved a fortune in interest and it's great not having that bill. I pushed a friend to pay extra...she was thrilled to pay hers off 7 years early too, enabling her to retire earlier. The trouble today is people overbuy, can't afford the payments that were too high to start, and get into huge trouble.

re: Mortgage debate: 30-year vs. 15-year

Taxpayer — Sat, 11 Jul 2009 12:40:19 GMT

I started out with a 30 year mortgage and went with a 15 year when I pulled out some equity and refinanced so that I would still be on target to have my house paid off by retirement ( I want to enjoy freedom of retirement at 62). My mortgage is pretty steep at $2,500/mo but I still max out my 401k (2008 was not good). I do not take into consideration any interest savings. My plan is to have the house and toys (already paid off) paid off and only have to worry about food, electric, and gas and bait money. And not neccessarily in that order.

re: Mortgage debate: 30-year vs. 15-year

Susan — Fri, 10 Jul 2009 21:52:43 GMT

I would add two other critical factors to the article:

1) The interest rate spread is worth considering, but the absolute interest rate is important too. Rates are near historic lows (low 5s). During inflationary times, even relatively conservative investments may be competitive, and the stock market is likely to outpace the mortgage by a good margin.

2) One also needs to consider taxes, since the interest is typically deductible. In places like CA, many homeowners are in the 28% (at least) federal bracket and 9% state tax bracket. That's almost 40%! In this situation, it's harder to make a compelling case for sacrificing a tax-free savings option (such as a 401K) in order to accelerate a mortgage payoff.

Remember also that you can usually pay a mortgage early without penalty, but the consequences are dire if you pay late. Saving the money elsewhere gives you a lot more runway if you encounter a serious setback. Something to think about.

re: Mortgage debate: 30-year vs. 15-year

punch — Fri, 10 Jul 2009 16:13:18 GMT

Before the depression almost no one owned a home. to buy a home required a 50% downpayment and a pay off within 5 years. the 30-year mortgage was created to help more people to afford homes. Which is why after WWII homeownership rose. People actually paid off their homes, until the tax credit on interest payment was created. Now people who have lived in their homes for more than 30 years have 2nd mortgages.

I think if you can afford the payments and plan on living in the home for a long time, then do a 15-year, but I think most people do a 30-year because they don't plan on staying in the home for very long. I did a 30-year when I bought my home 3 years ago, but have decided to refinance to a 15-year in a few years so that it is paid off by the time I retire.