advice about mortgage options

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Aurora518
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Joined: Tue Jan 02, 2018 7:02 pm

advice about mortgage options

Post by Aurora518 » Thu May 03, 2018 8:36 am

I'd like to get your advice about choosing between mortgage options.

I and my husband are moving to a new town to start new jobs and we are under contract for a new house, our first home purchase. We are planning to put down 20% but we are not sure what kind of mortgage is best for the remaining 80%. The main options seem to be either 15 or 30 year fixed rate. Can you advise how to choose between these?

Possibly relevant considerations: we will probably have no trouble meeting the monthly payments no matter what they are, so it's not too important to absolutely minimize our monthly payment. We're more interested in making the choice that is best for our long term finances. There is a moderate chance that we'll move within five to ten years, but it's by no means certain. It's probably unlikely that we'll stay in the same house for thirty years, but it's possible.

Thanks in advance!

tenkuky
Posts: 483
Joined: Sun Dec 14, 2014 4:28 pm

Re: advice about mortgage options

Post by tenkuky » Thu May 03, 2018 8:47 am

I have had great information from playing around with the mortgage professor calculators online.
See here....
https://mtgprofessor.com/calculators.htm
Using the payment calculator to compare different types of rates/durations, use the payoff one to see if you want to put in additional principal and how it affects your interest paid, duration of note etc. You can vary how long you expect to remain in the home, and tax bracket and other savings rates.

Jags4186
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Re: advice about mortgage options

Post by Jags4186 » Thu May 03, 2018 9:19 am

We were in a similar dilemma and decided on a 30 year. At the time it was a choice between 30 year 4.25% and 15 year 3.75%.

What it came down to was that after 15 years, if we saved the difference in payment every month and made a 6.6% nominal return, we would be able to sell everything, pay LTCG taxes, and have enough left over to pay off the mortgage. I don't think 6.6% nominal is that far out of the realm of possibility over 15 years, especially considering we could get to a point in the next 5-7 years where interest rates could allow a risk free return of 6.6%. Plus it gives us the cushion of if we for whatever reason needed the money we would have it, not have to muck around with a HELOC or other debt instruments. Who knows, in 15 years we may decide that this is great debt to have and hold onto it. Liquid assets are always more valuable than stored assets IMO so it's worth the risk of underperforming.

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lthenderson
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Location: Iowa

Re: advice about mortgage options

Post by lthenderson » Thu May 03, 2018 9:26 am

When times are good, you can always pay off the 30 year fixed faster if desired. However you can't slow down the payments on a 15 year fixed if something like a job loss or something else happens and money becomes short.

GAAP
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Re: advice about mortgage options

Post by GAAP » Thu May 03, 2018 9:36 am

Your basic choice is liquidity vs cost -- I come down on the side of liquidity. In your case, it sounds like you can and more importantly will manage the difference effectively. In that case, it's hard not to like a 30-year nominal mortgage at current rates.

bradpevans
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Re: advice about mortgage options

Post by bradpevans » Thu May 03, 2018 11:01 am

Jags4186 wrote:
Thu May 03, 2018 9:19 am
We were in a similar dilemma and decided on a 30 year. At the time it was a choice between 30 year 4.25% and 15 year 3.75%.

What it came down to was that after 15 years, if we saved the difference in payment every month and made a 6.6% nominal return, we would be able to sell everything, pay LTCG taxes, and have enough left over to pay off the mortgage. I don't think 6.6% nominal is that far out of the realm of possibility over 15 years, especially considering we could get to a point in the next 5-7 years where interest rates could allow a risk free return of 6.6%. Plus it gives us the cushion of if we for whatever reason needed the money we would have it, not have to muck around with a HELOC or other debt instruments. Who knows, in 15 years we may decide that this is great debt to have and hold onto it. Liquid assets are always more valuable than stored assets IMO so it's worth the risk of underperforming.
this is in line with what i have read: from an investment purpose, you are better of going 30 year AND investing the difference vs. the 15 year. The key word here being AND

-buzz-
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Location: USA

Re: advice about mortgage options

Post by -buzz- » Thu May 03, 2018 11:24 am

As mentioned above, liquidity vs cost is the real tradeoff.

Think about what stage of life you are in, foreseeable life changes within the next 15 years, and projected future income.

We chose the 15 year route.

One of our goals is to be totally debt free, including the house. The 15 year loan gets there faster. I like seeing the majority of my monthly payment chipping away at the debt. I love that the principal will be (almost) halfway paid off by the end of year 8 even if we make no additional principal payments.

Our plan is let taxable investments accumulate through appreciation and additional savings. When those accounts reach a predetermined amount, we will sell a portion and drop the net proceeds on the principal. We aren't decimating the taxable account but we are taking a little risk off the table in a disciplined way. Should something go off track (job loss, health issue, disability, etc) then we will reevaluate.

We hope to have paid off the mortgage in 8-9 years.
Last edited by -buzz- on Thu May 03, 2018 3:18 pm, edited 1 time in total.

thelimocat
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Joined: Sun Oct 15, 2017 2:04 pm

Re: advice about mortgage options

Post by thelimocat » Thu May 03, 2018 11:30 am

Aurora518 wrote:
Thu May 03, 2018 8:36 am
I'd like to get your advice about choosing between mortgage options.

I and my husband are moving to a new town to start new jobs and we are under contract for a new house, our first home purchase. We are planning to put down 20% but we are not sure what kind of mortgage is best for the remaining 80%. The main options seem to be either 15 or 30 year fixed rate. Can you advise how to choose between these?

Possibly relevant considerations: we will probably have no trouble meeting the monthly payments no matter what they are, so it's not too important to absolutely minimize our monthly payment. We're more interested in making the choice that is best for our long term finances. There is a moderate chance that we'll move within five to ten years, but it's by no means certain. It's probably unlikely that we'll stay in the same house for thirty years, but it's possible.

Thanks in advance!
You can do 15 years standing on your head, 30 is an albatross around your neck. There is nothing like a paid off house.

mortfree
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Re: advice about mortgage options

Post by mortfree » Thu May 03, 2018 11:38 am

Take a 30-year and pay it down at the pace of a 20-year mortgage.

Now, if you don't like seeing a lot of your monthly payment going to interest and it will drive you crazy, then go for the 15-year mortgage.

I've paid off a mortgage before (at age 39) and went 18 months with no mortgage payment... small taste of life with no mortgage. but we moved.

Now I'm doing what I mentioned in my first sentence for the new house - it's "only" $260/month extra, but I've been paying more than that since it is early on (not ideal in the BH world)...

bloom2708
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Location: Fargo, ND

Re: advice about mortgage options

Post by bloom2708 » Thu May 03, 2018 11:42 am

If you can afford either, take the 15 year.

Use a calculator and look at your total interest paid on the 15 year vs. the 30 year. :shock:

I don't know how much you are borrowing, but it may be 2,3,4,5 nice priced new cars over the 15 years you don't pay interest.

Will this be your last mortgage? Hard to say, but not paying interest is a pretty good thing.
Where to spend your time: | 1. You completely control <--spend your time here! | 2. You partially control <--spend your time here! | 3. You have no control <--spend no time here!

soccerrules
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Re: advice about mortgage options

Post by soccerrules » Thu May 03, 2018 11:48 am

Aurora518 wrote:
Thu May 03, 2018 8:36 am
Possibly relevant considerations: we will probably have no trouble meeting the monthly payments no matter what they are, so it's not too important to absolutely minimize our monthly payment.
If this is true then I would go with the 15 year.
I do/can appreciate the comments around liquidity and it should be a consideration. If you have adequate EF and some taxable assets to help in the event of job loss, then another nod to 15.
Doing the 30 year AND paying like it was a 15 year also works. I refinanced my 15 to a new 15 about 8 years ago when rates were dropping. It saved us about $650/mo in payments. For 2+ years I paid the old payment and the benefit is my mortgage will be done 3 years early.
Less debt and less interest is better than more debt and more interest
Don't let your outflow exceed your income or your upkeep will be your downfall.

JoeRetire
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Joined: Tue Jan 16, 2018 2:44 pm

Re: advice about mortgage options

Post by JoeRetire » Thu May 03, 2018 12:02 pm

Aurora518 wrote:
Thu May 03, 2018 8:36 am
I and my husband are moving to a new town to start new jobs and we are under contract for a new house, our first home purchase. We are planning to put down 20% but we are not sure what kind of mortgage is best for the remaining 80%. The main options seem to be either 15 or 30 year fixed rate. Can you advise how to choose between these?

Possibly relevant considerations: we will probably have no trouble meeting the monthly payments no matter what they are, so it's not too important to absolutely minimize our monthly payment. We're more interested in making the choice that is best for our long term finances. There is a moderate chance that we'll move within five to ten years, but it's by no means certain.
You would be better off renting until you were confident that you will be in the house for at least 7 years.
But if you are committed to purchasing, select a 30 year mortgage (assuming you get a good rate).

LiterallyIronic
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Joined: Sat Dec 05, 2015 10:36 am

Re: advice about mortgage options

Post by LiterallyIronic » Thu May 03, 2018 12:02 pm

-buzz- wrote:
Thu May 03, 2018 11:24 am
As mentioned above, liquidity vs cost is the real tradeoff.

Think about what stage of life you are in, foreseeable life changes within the next 15 years, and projected future income.

We chose the 15 year route.

One of our goals is to be totally debt free, including the house. The 15 year loan gets there faster. I like seeing the majority of my monthly payment chipping away at the debt. I love that the principal will be (almost) halfway paid off by the end of year 8 even if we make no additional principal payments.
We went for the 30 year in order to have a buffer in case of serious problems. We're only seven payments in, but I, too, want to see more going to principal than interest. So every month I look at the statement, calculate the difference between the interest portion and the principal portion, and pay that much extra toward principal. Seven months ago, the difference was $262. Now it's down to $244, so that's how much extra we paid last month. When the difference gets to less than $200, we're going to keep paying $200 extra. I don't know when we'll get to 50% of principal paid off, but we're at 2.2% after seven months, so it's coming along.

OP, if you're confident you can do the 15-year without problems, I'd go that route. Otherwise, I'd go the 30-year and pay it off like it's a 15. It'll cost you some interest, but give you options in exchange for it.

delamer
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Re: advice about mortgage options

Post by delamer » Thu May 03, 2018 12:14 pm

There are 10-year mortgage loans — we are 3 years into one now. Not all lenders offer them though; we got ours through our credit union. The portion of the payment going toward principal is quite high, and the interest rate should be a bit lower than the 15 year.

That said, consider how much you are contributing to your savings goals like retirement, college expenses, etc. when making your decision. If you aren’t meeting those goals or you have little liquidity, then go with the 30 year and direct the difference toward savings. You don’t want to have too much of your net worth tied up in an illiquid asset like a house.

Hillview
Posts: 310
Joined: Fri Feb 02, 2018 7:27 am

Re: advice about mortgage options

Post by Hillview » Thu May 03, 2018 2:47 pm

we did a 15 year (refinance) and paid it off in 7. If you have the cash flow paying less interest is appealing.

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