sjc@lambda.UUCP (Sandy J. Cifrodelli) (03/08/86)
I would like some opinions on 15 versus 30 Yr Mortgages. If I refinance at current rates, I can afford both. What are the pros and cons? What is the tax effect of the 15 Yr loan in terms of what I can write off on my 1040? Thanks Sandy
king@kestrel.ARPA (Dick King) (03/10/86)
From: sjc@lambda.UUCP (Sandy J. Cifrodelli) Newsgroups: net.taxes Date: 8 Mar 86 14:34:11 GMT I would like some opinions on 15 versus 30 Yr Mortgages. If I refinance at current rates, I can afford both. What are the pros and cons? What is the tax effect of the 15 Yr loan in terms of what I can write off on my 1040? Thanks Sandy A fifteen year note at a given bank will usually carry a slightly lower rate. This is reasonable as the bank's neck isn't stuck so far out. I would say that a fifteen year loan pays off faster than an undermaintained house deteriorates, and I wouldn't say that about a 30. There is technically no other advantage to a fifteen year mortgage except that usually the fifteen year rate is slightly lower, because you can pay a 30 year note at the fifteen year rate. You give up the option of paying slowly, and you gain the interest rate difference. I prefer the fifteen year note for myself, however, because of the psychological difference. My wife and I intend to pay at the 15 year rate, and I would rather lose the flexibility and never have either of us tempted to slow down the repayment. Of course the interest portion of the payment on a fifteen year note decreases much faster than on a 30. The difference is 2.5% (ignoring the interest rate difference) in the second year and widens rapidly. In the fifteenth year of the 15 year note you pay virtually no interest -- in that ear of the 30 you are paying 86% as much as you were when you started. Think of a thirty year note as the concatenation of two notes - a fifteen year almost-interest-only note glued to a slightly smaller fifteen year direct reduction loan. Ever notice that banks have no reluctance to give 30- and 40-year mortgages to people with life expectancies and career expectancies much less than the term? I know someone who is 35 who got a 40 year mortgage with no problem. -dick
john@hp-pcd.UUCP (john) (03/12/86)
<<<< < I prefer the fifteen year note for myself, however, because of the < psychological difference. My wife and I intend to pay at the 15 year < rate, and I would rather lose the flexibility and never have either of < us tempted to slow down the repayment. Fifteen years is a long time to plan on not having a really major emergency or disaster strike. If you have a 30 year loan it may take willpower to pay it off at a 15 year rate but you wont have to refinance it if something really bad happens. John Eaton !hplabs!hp-pcd!john
rdr@inuxh.UUCP (Robert Rindfuss) (03/15/86)
> <<<< > < I prefer the fifteen year note for myself, however, because of the > < psychological difference. My wife and I intend to pay at the 15 year > < rate, and I would rather lose the flexibility and never have either of > < us tempted to slow down the repayment. > > Fifteen years is a long time to plan on not having a really major emergency > or disaster strike. If you have a 30 year loan it may take willpower to > pay it off at a 15 year rate but you wont have to refinance it if something > really bad happens. > Worse than that, if the 'disaster' that struct was you losing your job, you would not be ABLE to refinance it. Bob Rindfuss
king@kestrel.ARPA (Dick King) (03/17/86)
From: rdr@inuxh.UUCP (Robert Rindfuss) Newsgroups: net.taxes Date: 15 Mar 86 19:00:14 GMT > <<<< > < I prefer the fifteen year note for myself, however, because of the > < psychological difference. My wife and I intend to pay at the 15 year > < rate, and I would rather lose the flexibility and never have either of > < us tempted to slow down the repayment. > > Fifteen years is a long time to plan on not having a really major > emergency or disaster strike. If you have a 30 year loan it may > take willpower to pay it off at a 15 year rate but you wont have > to refinance it if something really bad happens. > I dont understand. If things are such that you actually are able and willing to pay all fifteen years there is no difference between the two loans. If you have an emergency in the first fifteen years there is also little difference. However, with the long loan you are exposed for the full thirty years. You have to claim that the extra nine percent on the payment of the fifteen year loan (assuming the same interest rate of 10%) makes an unmeetable emergency so much more likely for those fifteen years that it compensates for the extra fifteen years of exposure, or (if you are planning to pay at the faster rate even if you take out the longer loan) that emergencies that can be met by dropping down to the contract payments of the 30 year note are common. Since most banks require the mortgage payment to be at most 1/3 of your income or so, you are here claiming that emergencies that can be met by trimming 3% of your income out of the mortgage payment but in no other way are common. Worse than that, if the 'disaster' that struct was you losing your job, you would not be ABLE to refinance it. Lending institutions REALLY don't want to forclose. I know of one couple who DID refinance after a loss of a job. The bank was convinced that they would be able to find a job within a year, and they made a deal that a year's interest would be added to the principle, with the payments to start again after a year (or sooner if a job was found first) with the ending date of the mortgage postponed as necessary to make the payment the same after the moratorium as before. Bob Rindfuss
rdr@inuxh.UUCP (Robert Rindfuss) (03/20/86)
_____________________________________________________________________________ Come on now! If you're going to flame someone's followup article, that's fine - just don't sign MY name to it!! It's really not appreciated. Bob Rindfuss ----------------------------------------------------------------------------- According to the header, this article was really from Dick King at Kestrel Institute, Palo Alto CA: > > From: rdr@inuxh.UUCP (Robert Rindfuss) NO, IT WASN'T!!!! > Newsgroups: net.taxes > Date: 15 Mar 86 19:00:14 GMT > > > <<<< > > < I prefer the fifteen year note for myself, however, because of the > > < psychological difference. My wife and I intend to pay at the 15 year > > < rate, and I would rather lose the flexibility and never have either of > > < us tempted to slow down the repayment. > > > > > Fifteen years is a long time to plan on not having a really major > > emergency or disaster strike. If you have a 30 year loan it may > > take willpower to pay it off at a 15 year rate but you wont have > > to refinance it if something really bad happens. > > > > I dont understand. If things are such that you actually are able and > willing to pay all fifteen years there is no difference between the > two loans. If you have an emergency in the first fifteen years there > is also little difference. However, with the long loan you are > exposed for the full thirty years. > > You have to claim that the extra nine percent on the payment of the > fifteen year loan (assuming the same interest rate of 10%) makes an > unmeetable emergency so much more likely for those fifteen years that > it compensates for the extra fifteen years of exposure, or (if you are > planning to pay at the faster rate even if you take out the longer > loan) that emergencies that can be met by dropping down to the > contract payments of the 30 year note are common. > > Since most banks require the mortgage payment to be at most 1/3 of > your income or so, you are here claiming that emergencies that can be > met by trimming 3% of your income out of the mortgage payment but in > no other way are common. > > > Worse than that, if the 'disaster' that struct was you losing your job, you > would not be ABLE to refinance it. > > Lending institutions REALLY don't want to forclose. I know of one > couple who DID refinance after a loss of a job. The bank was convinced > that they would be able to find a job within a year, and they made a > deal that a year's interest would be added to the principle, with the > payments to start again after a year (or sooner if a job was found > first) with the ending date of the mortgage postponed as necessary to > make the payment the same after the moratorium as before. >
dave@cylixd.UUCP (Dave Kirby) (03/20/86)
Some more considerations:
A 15-year mortgage is fine IF
(1) You plan to keep your house forever, or to sell it eventually
on a new loan.
(2) You are willing to live in a lesser house than you could
qualify for with a 30-year mortgage.
(3) You believe that the equity gained through amortisation will
be anywhere near significant in relation to the equity gained
through inflation.
BUT if you want to be able to sell your house easily, get an assumable
30-year fixed-rate loan at the current low interest rates. FHA loans
are especially good, since the buyer need not qualify in order to
assume the loan. Part of the ease in selling a house involves the
availability of financing for the buyer, and you might have trouble
finding people who are attracted to 15-year mortgages.
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Dave Kirby ( ...!ihnp4!akgua!cylixd!dave)