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

[z1ggy]

I'd rather take a 30yr mortgage, then pay the equiv. to the 10yr. Because over 10yrs, you only paid an extra 9k (excluding tax, insurance etc). That's less than $1k a year. I'd be more willing to risk $1k a year and be able to have the lux of falling back to my lower payment, then saving that money and hoping for 10 years my income levels never drop in any significant form.

For me, having my own house has a few key benefits that make it worth it
-I can decorate/paint whatever the heck I want
-No asshat neighor right above be pounding around at 2am
-I get my own water outlet so I can wash my car outside

The one large glaring negative I see though are how much more expensive utilities are for me. I easily spend 2-3x more a year on heat and e- than I did back in my old condo I rented.

 

[rh71]

I think in Canada you get penalized for paying extra early. I suppose that interest is how they make their money and they want all of it, but they also do shorter term loans. Interesting I thought.

I like the 30-year for the lower rate and we can add extra any time we want. Use this XLS for calculations - it's a lot more flexible than online calculators. For example, you can see how paying a lump sum extra once a year vs. every month can affect your interest saved. http://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html

 

[rh71]

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

You must have a $300,000 + house?

Location is key. In CA there was proposition 13 that limited taxes to 1% of the assessed value. That would make our house 6k a year. But we're in NY and we're not so lucky - we pay $16k (1300/mo. in taxes) and it goes up every other year. Home prices are high here but that's not what makes people leave...

 

[rcpratt]

I think in Canada you get penalized for paying extra early. I suppose that interest is how they make their money and they want all of it, but they also do shorter term loans. Interesting I thought.

I like the 30-year for the lower rate and we can add extra any time we want. Use this XLS for calculations - it's a lot more flexible than online calculators. For example, you can see how paying a lump sum extra once a year vs. every month can affect your interest saved. http://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html

Definitely check that early payments are not penalized. Usually they're not in the US, but yeah.

 

[Anubis]

Location is key. In CA there was proposition 13 that limited taxes to 1% of the assessed value. That would make our house 6k a year. But we're in NY and we're not so lucky - we pay $16k (1300/mo. in taxes) and it goes up every other year. Home prices are high here but that's not what makes people leave...

yep NY sucks

we pay more in taxes every month then most people pay for their mortage

 

[HumblePie]

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.

Property taxes go up every year too around here. And if you decide to do any work around your property? Well you need a permit if it is basically anything beyond landscaping. What does a permit do? reassess the value of your property, usually up, so not only are you paying a higher percentage in increased property tax, you are not paying that on a larger assessed value.

This is why many people that buy the bigger, nicer houses in Texas, tend to live way out in the country. All you pay there is a very low county and state property tax. Never have to get a permit to do most work on your land either. Now for the poor slobs that live in a city, that is a different story. I'm in a "small" city so my property tax rate for a city isn't bad. If I was living in San Antonio proper, it could be as high as 4+% in some places around the city. It gets pretty stupid really. In a way, this is why very few people like to buy new houses in San Antonio. Most of the new housing development is outside the city or in areas of the city with lower tax rates. There are exceptions, but it's not the norm.

Living in a state with no income tax means everything comes from property/sales taxes. Which does funny things to the housing market around here.

 

[Anubis]

i wish my property tax was only 4%

 

[skimple]

house value
~180k
combined taxes (town school state...) = ~9k a year

You know how I know you live in New York State?

 

[Genx87]

It all depends on what the interest rate is on the loan. I wouldn't pay off a low interest rate loan. Take the money you would put into the extra principle and invest it.

 

[Anubis]

You know how I know you live in New York State?

because of the ass rapeing?

 

[rcpratt]

It all depends on what the interest rate is on the loan. I wouldn't pay off a low interest rate loan. Take the money you would put into the extra principle and invest it.

Depends on both the interest rate of the loan as well as rates/RORs you'd be able to see elsewhere. Often there's a correlation.

 

[Genx87]

Depends on both the interest rate of the loan as well as rates/RORs you'd be able to see elsewhere. Often there's a correlation.

Of course, that is why I said a low interest rate loan. My car has a .9% interest rate. No way in hell that is getting paid off early. A mortgage loan at 4%? I wouldn't do that neither. If the OP takes the difference in principal payments between a 10 and 30 year loan then invests it with an avg return of 7%, it exceeds the extra interest paid.

 

[Legios]

I always got a kick out of seeing the Tax assessment. The land and the structure were each valued on my property, the total was the tax we had to pay. I always got a kick seeing my 1/4 acre plot being valued more than the house on it.

 

[96Firebird]

I read that my county has the highest property taxes percentage-wise in the whole country. Guess that makes up for the cheap housing...

 

[HumblePie]

i wish my property tax was only 4%

Houston, Dallas, and parts of Austin I think have much higher rates.

 

[alkemyst]

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.

QFT...it's always usually better for most to go with the longest term and pay the difference if they can afford it.

Just a couple bad months can ruin any savings potential.

That said, $9k is $9k

 

[alkemyst]

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.

This is not really true. It's the whole RE boom that got people confused, plus our ultra low interest rates that make the tax advantage less right now.

Usually if you to the math in most markets historically home ownership pays off over renting long term 7-10+ years.

If you look at it short term, much like buying a new car every two years you are losing money, but money is not the only 'value' in things like these.

 

[sdifox]

I think in Canada you get penalized for paying extra early. I suppose that interest is how they make their money and they want all of it, but they also do shorter term loans. Interesting I thought.

I like the 30-year for the lower rate and we can add extra any time we want. Use this XLS for calculations - it's a lot more flexible than online calculators. For example, you can see how paying a lump sum extra once a year vs. every month can affect your interest saved. http://www.vertex42.com/ExcelTemplates/loan-amortization-schedule.html

Depends on the product. Some allow annual payment towards your principal. Mine was 20% annually. We don't get to deduct mortgage payment. I still don't understand why that is even a posibility in the States.

<-- paid off 200k mortgage in eight years. Dual income with kid.

 

[Anarchist420]

they need to make all shelter expenses deductible while lowering marginal rates

 

[poofyhairguy]

This is not really true. It's the whole RE boom that got people confused, plus our ultra low interest rates that make the tax advantage less right now.

Usually if you to the math in most markets historically home ownership pays off over renting long term 7-10+ years.

If you look at it short term, much like buying a new car every two years you are losing money, but money is not the only 'value' in things like these.

This.

 

[darkxshade]

Wouldn't inflation work in your favor with a 30 year loan as opposed to the 10?

 

[alkemyst]

Wouldn't inflation work in your favor with a 30 year loan as opposed to the 10?

Too many variables to answer.

Most don't go full term.

 

[dullard]

Most don't go full term.

Most people have their first houses for only about 5 years. If that is a possibility (starter home, growing family, might change jobs, etc), then it makes sense to get the lowest interest rate possible without really thinking about the other variables here.

Even at low interest rates, ARMs can be the best option. A 5/1 ARM now lets you pay at the 30 year mortgage premium but have an average 3.26% interest rate (better than the best rate listed above). If a person is typical, then this is THE BEST option of all. It combines the best of both worlds. But there is a catch: if you stay longer, it very well may come back to haunt you. However, it'll take many more than 5 years to break even and then even longer to actually lose. The key is to select an ARM that can't change quickly.

Obviously if you are going to stay there 20+ years, don't even consider an ARM. But otherwise, it is certainly worth the consideration.

 

[alkemyst]

Most people have their first houses for only about 5 years. If that is a possibility (starter home, growing family, might change jobs, etc), then it makes sense to get the lowest interest rate possible without really thinking about the other variables here.

Even at low interest rates, ARMs can be the best option. A 5/1 ARM now lets you pay at the 30 year mortgage premium but have an average 3.26% interest rate (better than the best rate listed above). If a person is typical, then this is THE BEST option of all. It combines the best of both worlds. But there is a catch: if you stay longer, it very well may come back to haunt you. However, it'll take many more than 5 years to break even and then even longer to actually lose. The key is to select an ARM that can't change quickly.

Obviously if you are going to stay there 20+ years, don't even consider an ARM. But otherwise, it is certainly worth the consideration.

The risk of an ARM is refinance if your house doesn't sell.

Again, the traditional 30 year fixed rate loan is what most people should choose.

If you have a ton of cash in the bank and/or bought under your paygrade; other products look better.

If you are a REAL investor then things also change.

 

[HumblePie]

This is not really true. It's the whole RE boom that got people confused, plus our ultra low interest rates that make the tax advantage less right now.

Usually if you to the math in most markets historically home ownership pays off over renting long term 7-10+ years.

If you look at it short term, much like buying a new car every two years you are losing money, but money is not the only 'value' in things like these.

Only if your house value increases in a rate that exceeds inflation. Otherwise, no. It is not. And most houses do not increase in value that dramatically at all. Some do, and those that got lucky to buy into an area early before it gets "popular" is going to reap the rewards of doing so. But it's basically a gamble still and not an investment. Unless you think playing the lottery is an "investment" as well? I know people that have sat on land for a long time with the hope that some development will come to the area that needs the land so bad that they will pay way above the costs it took to pay for ownership and maintenance of the land for as long as they held it. Sometimes it works out. Many times it doesn't. Some people get lucky as hell, like those in Kennedy Texas area. Has more millionaires per capita now than anywhere. All because of the oil boom there made anyone that owner any scrap of land there a millionaire overnight.

Still, many houses also LOSE value or never gain any value over inflation rates at all. That is actually the majority of housing in this country. Low income, low value houses. These houses are not the majority. They do not make money for their owners.

But one can write those off as "poor" people houses right? Middle class and above houses surely tend to increase in value all the time right? That was once a close to true statement, that hasn't been true for awhile. It may be a true statement again, but as I pointed out that is a pretty big gamble to make. One can mitigate such a gamble by looking to buy into an area that development of a major population area seems to be heading. Doing so pretty much guarantees housing values in those areas go up. Look at Arizona, especially Pheonix, in the late 90's and early 00's. Many major manufacturers were setting up shop from Intel to Motorola. Driving a huge increase in job demand in the area. Which drove tons of people to the area. Which made the housing market BOOM for awhile. The housing market there isn't so hot now. Buying a house there isn't a good investment at all as the tides of the market have shifted there.

Again, your 10+ value only holds true if the average value increase is over the rise of inflation. If not, you are boned.