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MORTGAGES - How long?

A

Alphathree33

Platinum Member
Cliffs of my current situation:

-- Earn about $3500/month after tax
-- Pay $1100/month in rent currently
-- Just starting out, so have the potential to increase salary over the next few years

Cliffs of what I want:

-- Want to own my own place so that I can take advantage of appreciation in value, plus do home improvement, etc.
-- Looking for a 1-2 bedroom condo to stay in for perhaps 5 years, but probably will sell long before I pay off the mortgage

Cliffs of my questions:

-- How do I decide how long of a mortgage to get? With a short mortage (10 year), I pay off quickly and have less interest, but I cut my cashflow severely

What is your experience? Do most people get "long" (25+ year) mortgages?
 
35 years myself, just get it accelerated so you can pay more into it when you have the money if you consider that.
 
Originally posted by: Feneant2
35 years myself, just get it accelerated so you can pay more into it when you have the money if you consider that.
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So that would be ideal for me... as my salary increases, which I hope it will as I become more successful, I'll be able to afford more per month

Is there a mortgage "type" that lets me do that and doesn't have extra fees or tricks?
 
Ultimately, it depends on what you can afford. A 30 year mortgage is probably the most common because of the lower payments. 15 year mortgages are common for people that want to pay off quickly.
 
based on your income and if you want to keep about the same payments as you are paying in rent, I'd go with a 30 year. that way if you want to pay extra in to the mortgage you can, but you won't be weighed down by your mortgage.
 
not a mortgage/finance expert in the least, but if you're planning to sell in 5 years, there would be no need for a long term fixed rate. You may get a better rate with an ARM.
 
Originally posted by: rh71
not a mortgage/finance expert in the least, but if you're planning to sell in 5 years, there would be no need for a long term fixed rate. You may get a better rate with an ARM.
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They do, but when we bought our house a month or so ago, the rates for a 5 year ARM were not much different from a 30 year fixed.
 
Originally posted by: andylawcc
is there such a thing as prepayment penalty (paid off earlier than promised) for mortgages?
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Not usually. You will find prepayment penalties for 2nd mortgages though.
 
we have a 30 year fixed. with no peneality for paying it off early. we pay a extra $100-300 a month.
 
There's also the argument that although 30 year loans have a *slightly* higher interest rate, the interest is tax deductible if you can itemize. Plus, with lower loan payments, you can invest the difference, and possibly, especially over 30 years, average a higher rate of return than the interest rate you're actually paying.
 
Originally posted by: DrPizza
There's also the argument that although 30 year loans have a *slightly* higher interest rate, the interest is tax deductible if you can itemize. Plus, with lower loan payments, you can invest the difference, and possibly, especially over 30 years, average a higher rate of return than the interest rate you're actually paying.
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Exactly what I was going to say. We couldn't afford a 15 year mortgage, but it is a better idea anyway IMO to stick with a 30 because you are not tied to a high payment if you have an emergency. We can make our base payment or pay more toward principle if we choose to do so.


Edited a mistake.
 
We have the standard 30 year fixed rate VA mortgage. We considered a 15 year when we did our last refi but ended up sticking with the 30.
 
Just to clarify, you can always choose to pay extra with your monthly payment. So as was mentioned, you can take a 30-year mortgage and pay it off as if it was a 15-year mortgage if you want. We chose that option because we didn't want to be locked into the higher payment in case it got too painful. As it turned out, it will end up being paid off in 18 years as there were some times we needed the extra cash. Didn't quite make the 15 year target.
 
At this time, there's really little-to-no interest rate improvement in going with an ARM or a shorter term loan, so the best bet is just to get the 30 year fixed.
As kranky noted, you can always pay it off earlier by regularly applying extra payments to the principal.
 
Our house was inexpensive, so we got a 15-year mortgage. Also, we never exceed the standard deduction anymore, so tax savings aren't really a benefit.
 
Originally posted by: Aharami
Originally posted by: JS80
At today's interest rates I would do a 50 year mortgage if it existed.
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wouldnt you end up paying more in interest that way?
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Yes, but you can also make money by investing the difference. If you have a 6% mortgage and you can consistently get a 8% return on your investments, where would you rather put your money?
 
Just to emphasise what was said above and to keep it simple:

1) You can always turn a long mortgage into a short mortgage. A 30-year mortgage becomes a 15-year mortgage if you just pay the extra principal each month.

2) You can NEVER turn a short mortgage into a long mortgage. If one month you have a money crunch and can't afford the extra amount for a 15-year mortgage: tough. You face fees, penalties, and maybe foreclosure.

Conclusion: Only take the shorter mortgages if both (A) you cannot forsee a time where you can afford the long mortgage but not the short mortgage and (B) you get a significant savings with the short mortgage. The savings can be from lower interest rate or from significantly lower closing costs.

There are other reasons for shorter mortgages. Such as if you are retiring in 15 years, you probably want that house paid off before you retire (a 10 year mortgage may be ideal). But these other reasons probably don't apply to you.
 
Originally posted by: Capt Caveman
Also, if you pay bi-monthly, you can cut a 30-year mortgage to 20-years.
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Not because you pay bi-monthly though, but because you pay far more per year. That is a common myth.
 
30 year interest only
invest the difference between the 30 year interest only and a 15 year normal loan into an index fund
Pay off house at end of 30 years in one lump sum
walk away with a million+ in cash
 
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