MORTGAGES - How long?

[JS80]

Originally posted by: waggy

Originally posted by: JS80
At today's interest rates I would do a 50 year mortgage if it existed.

actualy i think they do. i recall reading that a few places were offering 50 year mortgage.


http://money.cnn.com/2006/05/1...omy_mortgage/index.htm

yeap

50 year adjustable rate? eff that!

 

[brtspears2]

I went for a 10/20 loan, where first 10 years are interest only, and after that, it recasts itself over 20 years. It gives me the security of a lower fixed payment, fixed interest rate, no prepay penalties.

It gives me the flexibility to pay whatever extra I can, while giving me long term security that my rate will never change. The loan recast after 10 years is scary, but if I haven't made enough in new jobs/raises in 10 years to cover an extra few hundred bucks a month, I got bigger problems.

 

[jadinolf]

I paid off the loan on my present home in 14 years.

What a wonderful feeling.

 

[thomsbrain]

Originally posted by: Cattlegod
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

you forgot:

-inconvenient market crash 2 years before interest-only mortgage finishes
-no time for Cattlegod's investments to recover
-Cattlegod can't afford his own house, gets foreclosed
-Cattlegod lives in an apartment

Why would you make such a long-term gamble on your home? You have NO idea what the economy will be like in 30 years, both in the wide view and the specific moment you suddenly need to pay for your house.

 

[alkemyst]

9 times out of 10 the interest savings for a shorter term is not worth the risk of missing a payment if you are stretching things. 9 times out of 10 paying points or down the principal is not worth it.

As long as you have a normal mortgage you really shouldn't have a pre-payment penalty. They can exist though especially for subpar credit.

Both paying more each payment and paying more often (like every 2 weeks rather than 1x a month) can contribute to much faster payoffs.

You can try some mortgage calculators here to see how the numbers work for you...Mortgage Calculators

Also most people move within 7 years....always plan your financing based on how long you are planning on being in the house.

 

[alkemyst]

Originally posted by: dullard

Originally posted by: Capt Caveman
Also, if you pay bi-monthly, you can cut a 30-year mortgage to 20-years.

Not because you pay bi-monthly though, but because you pay far more per year. That is a common myth.

It's not a myth, but your lender has to be set up to apply the payments to principal.

In the proper bi-weekly loan, you make half your payment every two weeks.

There are other variations on this, but it usually adds up to one extra payment a year. Paying one extra payment a year usually knocks around 7 years off the term of the loan though.

A bi-monthly payment is not the same thing though as the payments work out to be the same minus some minor interest.

 

[Cattlegod]

Originally posted by: thomsbrain

Originally posted by: Cattlegod
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

you forgot:

-inconvenient market crash 2 years before interest-only mortgage finishes
-no time for Cattlegod's investments to recover
-Cattlegod can't afford his own house, gets foreclosed
-Cattlegod lives in an apartment

Why would you make such a long-term gamble on your home? You have NO idea what the economy will be like in 30 years, both in the wide view and the specific moment you suddenly need to pay for your house.

In order for that to happen, the market would have to crash by over 80-90%. If that were to happen, at the age you would be, paying off your home would be the least of your and the government's worries. In addition, the numbers above are only assuming a conservative 8% return on your index fund.

You are also neglecting the effects inflation will have on the actual monetary value of the balance on the loan. A 200k loan taken out now and paying back in one lump sum 30 years from now is not very significant. You're salary will likely be well over that for a single year.

There is very little risk going this route. I would actually say there is significantly less risk going this route. If you pay all you can on a traditional 30 year loan, what happens if you lose your job and you can't make the payments? At least if you invest the money, you can pull it out and live off of it for years if you need to, and not lose your house.

 

[alkemyst]

Originally posted by: Cattlegod

Originally posted by: thomsbrain

Originally posted by: Cattlegod
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

you forgot:

-inconvenient market crash 2 years before interest-only mortgage finishes
-no time for Cattlegod's investments to recover
-Cattlegod can't afford his own house, gets foreclosed
-Cattlegod lives in an apartment

Why would you make such a long-term gamble on your home? You have NO idea what the economy will be like in 30 years, both in the wide view and the specific moment you suddenly need to pay for your house.

In order for that to happen, the market would have to crash by over 80-90%. If that were to happen, at the age you would be, paying off your home would be the least of your and the government's worries. In addition, the numbers above are only assuming a conservative 8% return on your index fund.

You are also neglecting the effects inflation will have on the actual monetary value of the balance on the loan. A 200k loan taken out now and paying back in one lump sum 30 years from now is not very significant. You're salary will likely be well over that for a single year.

There is very little risk going this route. I would actually say there is significantly less risk going this route. If you pay all you can on a traditional 30 year loan, what happens if you lose your job and you can't make the payments? At least if you invest the money, you can pull it out and live off of it for years if you need to, and not lose your house.

It's you that are neglecting inflation and other market adjustments that take place over time.

Also I don't know of any non-adjustable rate interest only loans that cover a significant repayment term. Chances are you are also perhaps comparing the Interest-only teaser rate and not even it's 'real rate'.

While right now it seems returns on investments are outperforming interest rates on mortgages there is also a lot of turmoil in the market. Also no one knows what's going to happen with the housing market.

However, with only $200k as an example the numbers are skewed sort of poorly. Most people will find it hard to stay in that level of home as they build families and careers.

Interest only products were created to allow investors an easier cash load while they sought another buyer. They were never intended for those planning on occupying their homes and part of the very reason most people are foreclosing.

 

[49erinnc]

Originally posted by: alkemyst

Originally posted by: dullard

Originally posted by: Capt Caveman
Also, if you pay bi-monthly, you can cut a 30-year mortgage to 20-years.

Not because you pay bi-monthly though, but because you pay far more per year. That is a common myth.

It's not a myth, but your lender has to be set up to apply the payments to principal.

In the proper bi-weekly loan, you make half your payment every two weeks.

There are other variations on this, but it usually adds up to one extra payment a year. Paying one extra payment a year usually knocks around 7 years off the term of the loan though.

A bi-monthly payment is not the same thing though as the payments work out to be the same minus some minor interest.

Can someone further elaborate on this? I get a letter from my lender once every few months, offering the bi-monthly option. Seems like a great deal when you look at the sample numbers they show you but I was wondering just how good of a deal it really is. For me, I know there's a one-time $49 processing fee and then $9/month fee. Not really worried about another $108 over the course of a year if paying bi-monthly puts a significant dent into the payoff time.

 

[dullard]

Originally posted by: alkemyst
It's not a myth, but your lender has to be set up to apply the payments to principal.

I think you really misunderstood me because what you said is exactly what I said.

The reason for the shorter mortgage period is NOT due to the timing of the payments. The timing of the payments makes almost no difference at all to the amount you pay or the length of the loan (the timing is just some very minor interest change as you pointed out). You did point out the real reason (as did I). The real reason you get the mortgage paid off earlier is because you are paying MORE per year with a bi-weekly program. "It usually adds up to one extra payment a year". Exactly. You pay more per year, thus your mortgage is over sooner. The myth part comes from people thinking the timing of the payments causes the shorter mortgage. In reality the extra paid per year causes the shorter mortgage.

I just want people to realize that they are paying far more each year for the bi-weekly plans. They are confused by the math and think they are paying the same amount. Actually, you pay more than an extra months worth every year.

Case 1: Traditional loan, $1000/month
* You pay $1000 * 12 = $12,000/year.

Case 2: Biweekly loan, $500/two weeks
* Remember there are slightly more than 52 weeks in a year. 52.18 to be more exact. Thus, there are slightly more than 26 bi-weekly periods on average in a year.
* You pay $500 * 26 = $13,000/year on 82.1% of the years
* You pay $500 * 27 = $13,500/year on 17.9% of the years.
* You pay on average $500 * 26.09 = $13,045/year

Difference in average year = $13,045/$12,000 = 8.7% more.

 

[dullard]

Originally posted by: 49erinnc
Can someone further elaborate on this? I get a letter from my lender once every few months, offering the bi-monthly option. Seems like a great deal when you look at the sample numbers they show you but I was wondering just how good of a deal it really is. For me, I know there's a one-time $49 processing fee and then $9/month fee. Not really worried about another $108 over the course of a year if paying bi-monthly puts a significant dent into the payoff time.

See my post above. Plus, that plan is a massive scam. You can pay the extra 8.7% per year on your own and have the same result. That way you save the $49 processing fee and you save the $9/month fee. They are charging you a lot of money to do something you can do for free. Just make certain your bank applies your extra payments to principal.

 

[alkemyst]

Originally posted by: dullard

Originally posted by: 49erinnc
Can someone further elaborate on this? I get a letter from my lender once every few months, offering the bi-monthly option. Seems like a great deal when you look at the sample numbers they show you but I was wondering just how good of a deal it really is. For me, I know there's a one-time $49 processing fee and then $9/month fee. Not really worried about another $108 over the course of a year if paying bi-monthly puts a significant dent into the payoff time.

See my post above. Plus, that plan is a massive scam. You can pay the extra 8.7% per year on your own and have the same result. That way you save the $49 processing fee and you save the $9/month fee. They are charging you a lot of money to do something you can do for free. Just make certain your bank applies your extra payments to principal.

Exactly, chances are the bank is not sending you the letter for that processing fee/monthly deal. A third party more than likely is. All they will do is then forward that same payment to your servicer.

Just call the bank and let them know you will be sending in a payment every two weeks and would like the additional amounts applied to principal.

 

[alkemyst]

Originally posted by: dullard

Originally posted by: alkemyst
It's not a myth, but your lender has to be set up to apply the payments to principal.

I think you really misunderstood me because what you said is exactly what I said.

The reason for the shorter mortgage period is NOT due to the timing of the payments. The timing of the payments makes almost no difference at all to the amount you pay or the length of the loan (the timing is just some very minor interest change as you pointed out). You did point out the real reason (as did I). The real reason you get the mortgage paid off earlier is because you are paying MORE per year with a bi-weekly program. "It usually adds up to one extra payment a year". Exactly. You pay more per year, thus your mortgage is over sooner. The myth part comes from people thinking the timing of the payments causes the shorter mortgage. In reality the extra paid per year causes the shorter mortgage.

I just want people to realize that they are paying far more each year for the bi-weekly plans. They are confused by the math and think they are paying the same amount. Actually, you pay more than an extra months worth every year.

Case 1: Traditional loan, $1000/month
* You pay $1000 * 12 = $12,000/year.

Case 2: Biweekly loan, $500/two weeks
* Remember there are slightly more than 52 weeks in a year. 52.18 to be more exact. Thus, there are slightly more than 26 bi-weekly periods on average in a year.
* You pay $500 * 26 = $13,000/year on 82.1% of the years
* You pay $500 * 27 = $13,500/year on 17.9% of the years.
* You pay on average $500 * 26.09 = $13,045/year

Difference in average year = $13,045/$12,000 = 8.7% more.

you had said it really wasn't due to paying more often but paying ALOT more per year, and again you are stating you are paying FAR MORE.

It has nothing to do with more weeks in a year than 52...the 52.18 is not a factor. Most if not all banks count a month as 4.3325 weeks which is 51.99 weeks a year though.

It has to do with there are 12 months in a year and some having more than 4 weeks in them. This is why paying 1/2 your payment 2x a month works out to the same by the end of the year (50% of your payment 24 times a year is 12 full payments), but paying 1/2 your payment every two weeks works out to 13 full payments (50% of your payment 26 times a year is 13 full payments).

A lot and far more to me is not one extra payment.

Also that 8.7% figure you posted above gets compounded over the life of the loan. It ends up saving several years, about 7 on average which for 1/12th extra in payment a month works out to be a pretty good trade off.

You can also just mail in an extra full payment at anytime for the same advantage, but many have a hard time coughing up one extra loan payment all at once.

 

[bwatson283]

get a 40 due in 30, get the benefit of all the 30 years, but having a 40/30 helps to bring down the pmt.

 

[dullard]

Originally posted by: alkemyst
you had said it really wasn't due to paying more often but paying ALOT more per year, and again you are stating you are paying FAR MORE.

Look at my example. Some years you pay $1000 more, others you pay $1500 more. And that is for a fairly small house mortgage. If you have an average house, make that $2000/$3000 more per year. You must be wealthier than I am. Because to me, $2000/$3000 is a lot and it is far more than $0.

It has nothing to do with more weeks in a year than 52...the 52.18 is not a factor.

The extra 0.18 is a factor every 7th year. It is a minor factor though. But that really isn't the crux of my point.

It has to do with there are 12 months in a year and some having more than 4 weeks in them. This is why paying 1/2 your payment 2x a month works out to the same by the end of the year (50% of your payment 24 times a year is 12 full payments), but paying 1/2 your payment every two weeks works out to 13 full payments (50% of your payment 26 times a year is 13 full payments).

Now you are just parroting what I just said. Except, I am being more precise. Yes, the big reason the bi-monthly payment plan has a shortening effect is that you pay a 13th payment every year. My simple clarification is that it is 13 full payments most years and 13.5 full payments on some years. You and I are both correct that it is the 13th payment that makes most of the difference. But, I just like to point out that it is even worse on a few years where you have to make a 13.5th payment.

A lot and far more to me is not one extra payment.

$2000/$3000 is not much to you. Good for you. For most of us, that is a lot of money. It is a lot of money that isn't being put to other good or bad uses. A good use could be saving for retirement at maybe 10% returns. A bad use would be to through it away on short-lived consumer goods.

Also that 8.7% figure you posted above gets compounded over the life of the loan. It ends up saving several years, about 7 on average which for 1/12th extra in payment a month works out to be a pretty good trade off.

Yes, it is compounded. That is why paying more per year is a good idea (especially for those who would just blow the money anyways). I never said it isn't a good idea. I just said the REASON for it being a good idea is a myth, and in fact there is another reason.

You can also just mail in an extra full payment at anytime for the same advantage, but many have a hard time coughing up one extra loan payment all at once.

Yes, you could mail in an extra full payment. But, you could also mail in an extra 1/12th payment with each payment. That is something many people might be able to swing. Or, in months with 5 Fridays* you can mail in a extra half payment (which is basicaly what the bi-monthly payment plan does).

* Replace Friday with any other day of the week if you perfer.

 

[alkemyst]

Originally posted by: dullard

Originally posted by: alkemyst
you had said it really wasn't due to paying more often but paying ALOT more per year, and again you are stating you are paying FAR MORE.

Look at my example. Some years you pay $1000 more, others you pay $1500 more. And that is for a fairly small house mortgage. If you have an average house, make that $2000/$3000 more per year. You must be wealthier than I am. Because to me, $2000/$3000 is a lot and it is far more than $0.

It has nothing to do with more weeks in a year than 52...the 52.18 is not a factor.

The extra 0.18 is a factor every 7th year. It is a minor factor though. But that really isn't the crux of my point.

It has to do with there are 12 months in a year and some having more than 4 weeks in them. This is why paying 1/2 your payment 2x a month works out to the same by the end of the year (50% of your payment 24 times a year is 12 full payments), but paying 1/2 your payment every two weeks works out to 13 full payments (50% of your payment 26 times a year is 13 full payments).

Now you are just parroting what I just said. Except, I am being more precise. Yes, the big reason the bi-monthly payment plan has a shortening effect is that you pay a 13th payment every year. My simple clarification is that it is 13 full payments most years and 13.5 full payments on some years. You and I are both correct that it is the 13th payment that makes most of the difference. But, I just like to point out that it is even worse on a few years where you have to make a 13.5th payment.

A lot and far more to me is not one extra payment.

$2000/$3000 is not much to you. Good for you. For most of us, that is a lot of money. It is a lot of money that isn't being put to other good or bad uses. A good use could be saving for retirement at maybe 10% returns. A bad use would be to through it away on short-lived consumer goods.

Also that 8.7% figure you posted above gets compounded over the life of the loan. It ends up saving several years, about 7 on average which for 1/12th extra in payment a month works out to be a pretty good trade off.

Yes, it is compounded. That is why paying more per year is a good idea (especially for those who would just blow the money anyways). I never said it isn't a good idea. I just said the REASON for it being a good idea is a myth, and in fact there is another reason.

You can also just mail in an extra full payment at anytime for the same advantage, but many have a hard time coughing up one extra loan payment all at once.

Yes, you could mail in an extra full payment. But, you could also mail in an extra 1/12th payment with each payment. That is something many people might be able to swing. Or, in months with 5 Fridays* you can mail in a extra half payment (which is basicaly what the bi-monthly payment plan does).

* Replace Friday with any other day of the week if you perfer.

One extra mortgage payment per year (and this scales to no matter how small or large that is) is not a lot of money considered that leverage saves you about $168000 on the loan (assuming a $2000 morgage payment). The total on the extra payments would be about $46k over the course of the loan.

You have really over complicated this bringing up longer years and such. More often than not many would not see a 'longer' year. Also most people are paid every two weeks, so those years that are longer, even though you have another 'payment' (which you really don't have to make regardless as long as you have those 12 full payments a year) you also have another part of a paycheck.

 

[alkemyst]

Originally posted by: bwatson283
get a 40 due in 30, get the benefit of all the 30 years, but having a 40/30 helps to bring down the pmt.

I would not recommend any of those types of programs. So many people (I am in the mortgage business for a top 10 company) assume their income is going to scale in a way it doesn't.

Every day we get a ton of borrowers looking to get bailed out, about 30 mins ago an email came across that the person planned on using 'possible' bonuses that never happened over the last 4 years. His loan is now going up 3% and he has no reserves to refinance along with paying the prepayment penalty if he did.

I am not sure if we will be able to help him as he was already tapped making his original payments.