30/20/15/10 year mortages dont make no sense

mizzou

Diamond Member
Jan 2, 2008
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I just did the math calculations on how much interest I would save over the life of a loan valued at $120,000.00

For a:
30 year loan @ 4.311 = $94,064 interest paid over life (594.62 P&I monthly)
20 year loan @ 4.084 = $55,799.48 total interest ($732.50 P&I monthly)
15 year loan @ 3.481 = $34,213.17 total ($856.74 P&I monthly)
10 year loan @ 3.278 = $20,902.98 total interest ($1,174.19 P&I monthly)


So let's say I go with the 4.311 30 year loan. OK, now Ipay $594.62 P&I. But damn< now I am rich and I want to pay my loan off and I'm kicking myself for not getting the 10 year loan at 3.278. Well take ($1,174.19 - $594.62 = 579.57)

OK, I'm just going to pay a extra $579.57 each month directly to principle. If I do that day ONE, the following will now happen
Loan paid in full on month 128 (10.6 years) and paid a total of $29,805.91 interest.


So bascially the difference is
3.278 @ 10 year = $20,902.98 interest
4.11 @ 30 year + extra payments = $29,805.91 interest



Would that $9,000.00 gain be worth the hassle? Before I did the math, I thought it was going to be an extraordinarily different number, but it's actually pretty damn close considering you go from a 30 year to 10 year mortgage.

It looks like maybe the 15 year loan is the sweet spot
 

RaistlinZ

Diamond Member
Oct 15, 2001
7,629
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The benefit of the 30 year loan in that case is that you'd only "have" to pay $594.62/month. So lets say you run into some bad luck and lose your job. With the 10 year loan you'd be stuck paying $1,174.91/mo whether you like it or not. That would blow through your saving faster than if you were on the 30 year loan. On the 30 year you could just stop making the extra principal payments until you found a new job.
 

mizzou

Diamond Member
Jan 2, 2008
9,734
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The benefit of the 30 year loan in that case is that you'd only "have" to pay $594.62/month. So lets say you run into some bad luck and lose your job. With the 10 year loan you'd be stuck paying $1,174.91/mo whether you like it or not. That would blow through your saving faster than if you were on the 30 year loan. On the 30 year you could just stop making the extra principal payments until you found a new job.

very true, and that is what has me thinking it's not really worth it to go with something like a 10 year loan...

I don't know, maybe the real savings start pouring in when you start talking about $500,000 mortgages and such.
 

HumblePie

Lifer
Oct 30, 2000
14,667
440
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Houses aren't an investment. More often than not, a person buying a house is going to lose money over the life of the mortage than make money. Only the flippers, real estate agents, and other associated vultures of the housing industry actually make money off houses. The golden age of house buying for the average American has long been dead.

Now buying over renting has certain tangible benefits, but you pay for those benefits.

Also, don't forget to factor in the tax amount for those people with property taxes for a house. I pay like $500 extra a month for taxes.
 

SunnyD

Belgian Waffler
Jan 2, 2001
32,674
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Consider the opposite end of the spectrum: Life insurance

It faces pretty much the exact same scenario in reverse. You can take a short term life policy at a significant discount, but each term the rate goes up. You can take a longer term, but at a higher overall rate. Or you can take a whole life police at the highest rate of all. It's all about gambling what your future is going to look like.
 

mizzou

Diamond Member
Jan 2, 2008
9,734
54
91
Houses aren't an investment. More often than not, a person buying a house is going to lose money over the life of the mortage than make money. Only the flippers, real estate agents, and other associated vultures of the housing industry actually make money off houses. The golden age of house buying for the average American has long been dead.

Now buying over renting has certain tangible benefits, but you pay for those benefits.

Also, don't forget to factor in the tax amount for those people with property taxes for a house. I pay like $500 extra a month for taxes.

God damn, $500 a month!? I pay around $180 each month including hazard & taxes lol

You must have a $300,000 + house?
 

KillerBee

Golden Member
Jul 2, 2010
1,753
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If the shortest term 10 year loan is easily affordable to you - do it.

Unless you have another invest option with a good guaranteed interest significantly more than 3.2%
where it may be better to go with the 15 year and put the extra 318 into

not that I know anything financially
just wish I had paid off my mortgage earlier - never know what will happen in the future job wise

The other side is ...
Who knows what rates will be like 15 or 20 years from now.
A 30 year loan at these current super low rates would be a great investment if loan rates shoot back to 15% 20%
 
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acheron

Diamond Member
May 27, 2008
3,171
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God damn, $500 a month!? I pay around $180 each month including hazard & taxes lol

You must have a $300,000 + house?

"house"? Around here, $300,000 might get you a cardboard box and/or a van down by the river.
 

yuchai

Senior member
Aug 24, 2004
980
2
76
You can also deduct interest payments, so the after tax difference is even smaller I think?

The 15 year is a no brainer if you can easily afford it, but for most people the 30 year probably still makes more sense for the additional security.
 

DrPizza

Administrator Elite Member Goat Whisperer
Mar 5, 2001
49,606
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Houses aren't an investment. More often than not, a person buying a house is going to lose money over the life of the mortage than make money. Only the flippers, real estate agents, and other associated vultures of the housing industry actually make money off houses. The golden age of house buying for the average American has long been dead.

Now buying over renting has certain tangible benefits, but you pay for those benefits.

Also, don't forget to factor in the tax amount for those people with property taxes for a house. I pay like $500 extra a month for taxes.
If you move out of your house at 20, with the average life expectancy, you can either rent for the next 60 years, or pay a mortgage for 30 years. Mortgage payments don't increase (other then escrow). Rent tends to increase. That seems to be a pretty tangible benefit to me.
 

dullard

Elite Member
May 21, 2001
25,032
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You can also deduct interest payments, so the after tax difference is even smaller I think?
You MAY be able to deduct interest payments. It isn't a given. And on just a $120,000 loan and with interest rates that low, there is a good chance that the original poster won't be able to deduct interest payments. Or if he can deduct some, there is a good chance that won't be able to deduct all of it.

Only if his (state taxes) + (local taxes) + (donations) + (a few other deductions that most people don't have) is more than his standard deduction will he be able to deduct all of it. And if he is looking at a $120k mortgage, chances are those taxes and donations don't add up to much. This is even more true on the first year of the mortgage since interest will only be for a fraction of a year.
 
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Oct 25, 2006
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If you move out of your house at 20, with the average life expectancy, you can either rent for the next 60 years, or pay a mortgage for 30 years. Mortgage payments don't increase (other then escrow). Rent tends to increase. That seems to be a pretty tangible benefit to me.
That requires you to be stuck in one place at 20 years old with the exact same job.

That may have flown 50 years ago, but these days, young people are much more mobile and so renting is much more feasible. Less locking you down.
 

dullard

Elite Member
May 21, 2001
25,032
3,370
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It looks like maybe the 15 year loan is the sweet spot
You are looking at it wrong. If you have $1174 a month available, calculate the interest paid on all of those mortgages with $1174 payments. Then you can see how much is REALLY saved by taking the risk of a shorter mortgage. Otherwise you are comparing apples to oranges.
 

KillerBee

Golden Member
Jul 2, 2010
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lol - if I was a current young mobile tech stud making some $ ...

I would buy a house in every market I worked and then rent it out after moving on to the next area.

Let the renters pay em off while I enjoy the tax writeoffs ...Retire a millionaire
 

Attic

Diamond Member
Jan 9, 2010
4,282
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Will it be easier or harder to earn a buck in 20 years?

The dollars you pay today are worth more than the dollars you pay tommorow.

So some people choose to pay as much as possible with tommorow dollars.


That being said I like the idea of no morgate as soon as possible, but a cheap 30 year is a good option as well. We know payments are worth less over time, which is the same as saying it will be easier to earn those payments tommorow.

It's likely that by year 20 that a 1000 payment on year 20 will be worth the same or less than a 500 payment today. That means that 600 payment in your example for the 30 year is much much cheaper as the morgate goes on than it is when the morgate is originated. So were talking about a sub 300 payment in time adjusted dollars towards the end of that 30 year example.
 
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Leros

Lifer
Jul 11, 2004
21,867
7
81
Take the longest loan you can and pay it off the fastest you can.

The extra $9000 interest is well worth the security and peace of mind knowing that you have a low mortgage payment if times get rough.
 

alzan

Diamond Member
May 21, 2003
3,860
2
0
God damn, $500 a month!? I pay around $180 each month including hazard & taxes lol

You must have a $300,000 + house?

No kidding!

House value - 120K
Taxes - 2K/year

When we bought the house 12 years ago we got a 30yr mortgage with the option of paying every two weeks ($225) (in effect, an extra principal pymt/year). Five years ago we refinanced to a 15 year loan; with the extra principal pymts we have it paid off in 6-7 years, 3-4 years off the life of the loan.
 

Anubis

No Lifer
Aug 31, 2001
78,716
417
126
tbqhwy.com
No kidding!

House value - 120K
Taxes - 2K/year

When we bought the house 12 years ago we got a 30yr mortgage with the option of paying every two weeks ($225) (in effect, an extra principal pymt/year). Five years ago we refinanced to a 15 year loan; with the extra principal pymts we have it paid off in 6-7 years, 3-4 years off the life of the loan.

this really depends on the state you live in

the taxes in NYS are just stupid. i was not kidding when i posted above that the taxes on my sub 200k house are nearly 10k a year
 

Vdubchaos

Lifer
Nov 11, 2009
10,411
10
0
It's always best to have an option to pay less. I recommend 30 year and pay it down faster. If shit hits the fan, you can pay less.

Nice option to have.

Also this:

Houses aren't an investment. More often than not, a person buying a house is going to lose money over the life of the mortage than make money. Only the flippers, real estate agents, and other associated vultures of the housing industry actually make money off houses. The golden age of house buying for the average American has long been dead.

Now buying over renting has certain tangible benefits, but you pay for those benefits.

Also, don't forget to factor in the tax amount for those people with property taxes for a house. I pay like $500 extra a month for taxes.
 

Vdubchaos

Lifer
Nov 11, 2009
10,411
10
0
lol - if I was a current young mobile tech stud making some $ ...

I would buy a house in every market I worked and then rent it out after moving on to the next area.

Let the renters pay em off while I enjoy the tax writeoffs ...Retire a millionaire

If you think it's that easy and you can just "move to another area" you are out of your mind.

People will ruin your houses and not pay rent. In some states you can't even kick them out........
 

bruceb

Diamond Member
Aug 20, 2004
8,874
111
106
The trick is to find the term with lowest interest rate with a payment you can easily manage. Then if you find extra cash some months, just "add it to your principal payment" Be sure you mark it as such, so the principal balance is credited. This way, the loan pays off faster and cheaper.
 

jaedaliu

Platinum Member
Feb 25, 2005
2,670
1
81
I didn't check your numbers, but it sounds like you have the right idea.

9k on your 120k house is ~7.5% of the total house cost.

It's a risk assessment for you. The safer way is to get the 30 and pay it quickly, so if there is a bump in the road over the next 10 years, it's easier to come up with $500/month to pay the mortgage than $1100.

However, if you're very sure of your job security, feel free to take the 10 year.

If you're committed to paying it off early, the difference between the 2 options is 9k. However you slice it, you're saving 40% of the total payments if you paid only the monthly on e 30 year loan.

All that said, financial advisers recommend not paying off quickly, taking whichever loan, and investing the money. They claim to be able to get ~8% year over year, and when you get to the payoff amount in cash/investments, you can liquidate and pay off the balance of your loan, or just keep continuing making the minimum payments on your loan while earning a higher percentage in investments.
 

DigDog

Lifer
Jun 3, 2011
13,467
2,098
126
if you got a mortgage 30 years ago you would be paying it with peanuts and plastic groceries bags today. from when people would earn $5/h to $30/h, your payments went down by 5/6.
ofc, this assumes you can stay in one place for 30 years.