Comments on: The 30 Year Mortgage Paradox http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/ It's a Doozy! Fri, 27 Jan 2012 13:50:57 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Austin Mortgage Broker http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-266898 Austin Mortgage Broker Sun, 09 Dec 2007 20:06:31 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-266898 Excellent article! In my experience, most people typically buy a home that they can barely qualify for, which is why they go for the 30 year plan. However, my advice to them is to make an extra payment every year, which will typically pay off your mortgage in 22 years instead of 30 years. This way you get the security of having lower payment obligations when times are tough, but have the flexibility to make extra payments when times are better. Excellent article! In my experience, most people typically buy a home that they can barely qualify for, which is why they go for the 30 year plan. However, my advice to them is to make an extra payment every year, which will typically pay off your mortgage in 22 years instead of 30 years. This way you get the security of having lower payment obligations when times are tough, but have the flexibility to make extra payments when times are better.

]]> By: David Reuben http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-260436 David Reuben Mon, 15 Oct 2007 18:04:35 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-260436 I am glad that you have given people this information. You here will save people so much money when they buy a home. A mortgage is expensive over the long term, and the interest rate is huge (it adds up). Many would shy away from a 15 year mortgage, simply due to the higher monthly rate. But it is worth it in the end. After all, every payment you make gives you more equity in the property rather than paying for the interest. I am glad that you have given people this information. You here will save people so much money when they buy a home. A mortgage is expensive over the long term, and the interest rate is huge (it adds up).

Many would shy away from a 15 year mortgage, simply due to the higher monthly rate. But it is worth it in the end. After all, every payment you make gives you more equity in the property rather than paying for the interest.

]]> By: AaCredtCard http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-184113 AaCredtCard Mon, 06 Aug 2007 16:45:54 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-184113 There is a reason why people get credit cards. You pay more but there is no other way to buy the things you want. The thing is that you need to carefully compare credit card deals before choosing the one that will cost you less. If you want to find one check out firts premiere card. There is a reason why people get credit cards. You pay more but there is no other way to buy the things you want. The thing is that you need to carefully compare credit card deals before choosing the one that will cost you less. If you want to find one check out firts premiere card.

]]> By: Mortgages News » Blog Archive » External Mortgage Help http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-160164 Mortgages News » Blog Archive » External Mortgage Help Thu, 12 Jul 2007 04:37:42 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-160164 [...] isnoop.net has a post that gives a good overview of what you might want to look at with regard to the term of your mortgage. Rather than just trying to look into the near future, it’s important to try to gauge how your level of mortgage payments will affect you over the longer term. [...] [...] isnoop.net has a post that gives a good overview of what you might want to look at with regard to the term of your mortgage. Rather than just trying to look into the near future, it’s important to try to gauge how your level of mortgage payments will affect you over the longer term. [...]

]]> By: Ed Lathrop http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-73548 Ed Lathrop Mon, 30 Apr 2007 01:35:40 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-73548 Also, if you just pay an extra $200 a month on a $350000 mortgage at 6.259%, you will save over $100000. The problem is that people buy at a price they can barely afford and that's all right. The first step toward prosperity is to buy your own home. Also, if you just pay an extra $200 a month on a $350000 mortgage at 6.259%, you will save over $100000. The problem is that people buy at a price they can barely afford and that’s all right. The first step toward prosperity is to buy your own home.

]]> By: marshall reddick http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-46672 marshall reddick Mon, 26 Feb 2007 20:38:06 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-46672 let's also not forget that IRS caps the capital gains exemption amount to $250k per individual. let’s also not forget that IRS caps the capital gains exemption amount to $250k per individual.

]]> By: Ian Baldwin http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-45784 Ian Baldwin Sat, 24 Feb 2007 08:20:59 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-45784 The points you make are valid. But the idea is to reinvest property money in order to be tax efficient. The points you make are valid. But the idea is to reinvest property money in order to be tax efficient.

]]> By: Ian http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-37294 Ian Thu, 01 Feb 2007 00:54:59 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-37294 Ryankv: You raise good points, but capital gains wouldn't be a factor if you reinvest all of the proceeds in your next house. The other factors apply equally or proportionally to both methods, so I considered them moot. Ryankv: You raise good points, but capital gains wouldn’t be a factor if you reinvest all of the proceeds in your next house. The other factors apply equally or proportionally to both methods, so I considered them moot.

]]> By: ryankv http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-37210 ryankv Wed, 31 Jan 2007 20:48:03 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-37210 You would have to take out a larger loan than 350k to buy the second house valued at 1.85m. Capital gains would take a considerable portion of your profits. Cutting into your profits of both scenarios would be loan interest, property tax, housing insurance, closing costs/brokerage fees and maintenance. You would have to take out a larger loan than 350k to buy the second house valued at 1.85m. Capital gains would take a considerable portion of your profits. Cutting into your profits of both scenarios would be loan interest, property tax, housing insurance, closing costs/brokerage fees and maintenance.

]]> By: tim http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-28737 tim Wed, 03 Jan 2007 15:39:37 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-28737 The key parameter is the 10% housing appreciation: if an asset is worth more than you are paying for it (the house is going up at more than the cost of money), then your scenario is correct. But what if the last 10 years of 10% growth have brought housing to it's correct value (appreciated the value of land in line with the increased demand from the extra 100 million americans accumulated over the last 40 years). Or worse, what if people have over-corrected the value of land? (quite likely - the value should have gone up, but the fact that it has been going up creates speculation about the correct value of the increase). Then you need to model a world in which housing goes backwards or appreciates at say half the rate of inflation for 30 years, as it did in the 20s-30s? Under those circumstances, both house buyers (the 15/15 and the 30) will be worse off than a person who stays out of the market, renting for 5 years, then buys in (they have spent less on rent than the mortgage and depreciation outgoings, and earned interest for 15 years). The key parameter is the 10% housing appreciation: if an asset is worth more than you are paying for it (the house is going up at more than the cost of money), then your scenario is correct. But what if the last 10 years of 10% growth have brought housing to it’s correct value (appreciated the value of land in line with the increased demand from the extra 100 million americans accumulated over the last 40 years). Or worse, what if people have over-corrected the value of land? (quite likely – the value should have gone up, but the fact that it has been going up creates speculation about the correct value of the increase). Then you need to model a world in which housing goes backwards or appreciates at say half the rate of inflation for 30 years, as it did in the 20s-30s?

Under those circumstances, both house buyers (the 15/15 and the 30) will be worse off than a person who stays out of the market, renting for 5 years, then buys in (they have spent less on rent than the mortgage and depreciation outgoings, and earned interest for 15 years).

]]> By: sean http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-21839 sean Mon, 11 Dec 2006 19:56:06 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-21839 Interesting analysis. There is an in-between alternative to the 15 or 30 year mortgages. You can "convert" any 30-year mortgage to a shorter term by paying extra every month on your mortage payments. The additional money you pay goes to principle (at least on the mortgages that I've had). Your total amount of interest goes down because you make fewer payments overall and you increase the proportion of your payment that goes toward clearing the debt. The only thing you lose out on is the lower interest rate available on 15-year mortgages. You can calculate the exact additional payment you need so that your mortgage is paid off on the term you would prefer, whether that's 15 years or 20 or whatever. The catch is actually making the extra payment when you know that you technically don't have to make it. Interesting analysis. There is an in-between alternative to the 15 or 30 year mortgages. You can “convert” any 30-year mortgage to a shorter term by paying extra every month on your mortage payments. The additional money you pay goes to principle (at least on the mortgages that I’ve had). Your total amount of interest goes down because you make fewer payments overall and you increase the proportion of your payment that goes toward clearing the debt. The only thing you lose out on is the lower interest rate available on 15-year mortgages.

You can calculate the exact additional payment you need so that your mortgage is paid off on the term you would prefer, whether that’s 15 years or 20 or whatever.

The catch is actually making the extra payment when you know that you technically don’t have to make it.

]]> By: JakeZ http://blog.isnoop.net/2006/10/19/the-30-year-mortgage-paradox/comment-page-1/#comment-13853 JakeZ Sat, 04 Nov 2006 19:46:29 +0000 http://isnoop.net/blog/2006/10/19/the-30-year-mortgage-paradox/#comment-13853 so there are a couple variables you need to consider before going down this road. first, interest you pay on your home reduces your taxable income, so it's not an apples to apples comparison when you just look at interest. you also have to look at tax saved within your income bracket after you take the deduction. also, very few people will stick with their mortgage through the life of the loan. if you have any interest in re-financing and using your equity to do home repairs, pay for school, buy a boat, you may be better off going with the 30 year loan, paying over your rate, and banking on that equity. however, any principal you pay down will not reduce your taxable income, effectively making your taxes higher. one option to reduce interest rates is buying down the rate. we were approved for 6 but bought down a percentage of the loan with what was supposed to be my bonus money to get the rate down to 5.875. we did the same on the second to great effect, getting it down to 9. this method makes up for a sub-par credit score or a complete disdain of interest, if you have that bug. another option is to take a lower interest loan product for the second. we did was 30 year fixed on the first and 30-15 balloon on the second. yes, balloons are dangerous devices, but we are certainly going to re-finance before we hit the 15 year maturity date, making the lower interest rate more attractive. add in a buydown and you have yourself a pretty good loan deal. i could talk about this all day. let me know if you have any questions or would like the name of my mortgage broker. he does great work. so there are a couple variables you need to consider before going down this road. first, interest you pay on your home reduces your taxable income, so it’s not an apples to apples comparison when you just look at interest. you also have to look at tax saved within your income bracket after you take the deduction. also, very few people will stick with their mortgage through the life of the loan. if you have any interest in re-financing and using your equity to do home repairs, pay for school, buy a boat, you may be better off going with the 30 year loan, paying over your rate, and banking on that equity. however, any principal you pay down will not reduce your taxable income, effectively making your taxes higher.

one option to reduce interest rates is buying down the rate. we were approved for 6 but bought down a percentage of the loan with what was supposed to be my bonus money to get the rate down to 5.875. we did the same on the second to great effect, getting it down to 9. this method makes up for a sub-par credit score or a complete disdain of interest, if you have that bug.

another option is to take a lower interest loan product for the second. we did was 30 year fixed on the first and 30-15 balloon on the second. yes, balloons are dangerous devices, but we are certainly going to re-finance before we hit the 15 year maturity date, making the lower interest rate more attractive. add in a buydown and you have yourself a pretty good loan deal.

i could talk about this all day. let me know if you have any questions or would like the name of my mortgage broker. he does great work.

]]>