Sure, I can get a better rate with a 15 year mortgage, but I could get more house (and smaller payments) if I got the 30 year. My question is really whether there are reasons why it’s a bad idea *considering my age * to take a 30 year mortgage.
Roughly, with a household income of 130K, and looking at houses in 250K to 300K range (I hope - that’s not too much, is it?).
If I had to guess, I’d say the chances of me actually still living in the same house for 30 years are pretty close to zero. If/when I retire at 65 I don’t think I’d stay here.
I’m over 50 and I just took out a 30 year mortgage. If your goal is to pay off your house before you retire then taking a shorter term loan might make sense for you. But if you plan to move when you retire (are presumably sell your house) I’m not sure what difference it really makes. I would opt for the increased appreciation potential… but that’s just me.
I’m a homeowner, but a much smaller house, I owe 101K but I just had it appraised (for PMI reasons) and is was appraised at 175K, which is nice for down payment of course. So I’d be going from 900$ monthly payments to more like 2K I guess.
The question wasn’t as much whether I should buy a house but rather the 15 year vs 30 year situation.
You don’t have to live in the house for 30 years, just because you have a 30-year mortgage. If you decide you want to move, you sell this house and convert the old mortgage to the new house. Or pay off the old mortgage, and get a new one.
It might be worth running some numbers. I have no experience in financial planning, but the first thing that strikes me is that you might want to get a shorter mortgage to push as much of your tax-deductible interest payments into the time when you’ll be earning money (and presumably at a higher tax rate) rather than when retired (and presumably paying a much lower tax rate).
One benefit is that a 30 year mortgage can typically be paid in 15 years reducing interest payments etc. if you want to just by making higher payments. But it gives you the flexibility of a lower 30 year payment if your circumstances require it.
Doesn’t the house price to income ratio seem a little low to you guys? Maybe its just because I’m used to expensive places to live, but I would expect a house price of arround 5 times my yearly income to be more normal.
Make the best of both worlds. Go for the 30-year mortgage but make an additional principal payment (or more) every month. You’ll pay it off in 15 years, and have a faster appreciation of equity. In addition, if an unforeseen expense pops up, you can still skip the extra principal payment to cover that expense and not get nailed with a tight cash flow.
As DUCKSTER said, you can write a 30 year mortgage, but pay it off faster (make sure you don’t have pre-payment issues).
Or, given you think you’ll retire to some other area - take the 30 year mortgage, use any ‘extra’ money to buy a rental (that you’d be happy living in) in the area you expect to retire to (yes, I know things can change, but a plan is good.) Rent out the second house, and move into it when you retire - selling the current residence for probably a nice chunk of money. We’re currently on this track (about 3 years to retirement), and it looks good from here.
While Duckster’s advice on this matter is not bad, the OP should remember (and most likely does) that you’ll likely wind up paying an additional .25 to .50% in APR for a 30 year versus a 15 year note.
I am not CERTAIN it will help you more than MS Excel, but I’d suggest playing with FinanceMaster from http://www.cartestsoftware.com/financemaster/
Neat little app.
If you are real interesting in planning your long-term financial future, consider trying out the J&L Financial Planner. Neat stuff. http://www.jlplanner.com/ . Not free, but likely worth it.
Not me. When I got the house it was 1.7 times my household’s pre-tax income. I had an income drop since then, so if I paid the same for the home today as I did two years ago it would be 2.2 times household income.
Buy property in an average neighborhood in the midwest and you’ll probably find this to be a typical ratio.
There is nothing wrong with the 30 year fixed mortgage at any age up to 55.
Just remember if you are paying points, plan to being staying in the house for 7-8 years for the point to have been worthwhile.
At 45 it should be reasonable to expect to stay 20 years. You can also look at a 20 year fixed mortgage. With todays rates ensure you pick a fixed rate mortgage.
If you want to talk about it, email me and I’ll call you with the info I have gleaned from a purchase 4 years ago and a refinance beginning of last year.
Some conversations are better by voice. Sounds like you are looking for a $200,000 loan. This is low for your income level. I am in a very similar economic and age bracket.
A. How is your retirement saving and/or pension situation looking
B. Since you don’t plan to leave the house feet first, when DO you plan to leave and what are your expectations upon doing so?
Those (to me) are critical questions to answer this in a GQ way – but Note there IS a GQ answer for you specifically either 15 or 30.
Historically your house will appreciate faster than your Mortgage - especially over a 20 year time span. So, based on History, you will be able to realize enough to pay off your 30 year at 65 when you retire & still have plenty of sweet, sweet appreciation …
Make sure that you are saving enough and properly for the retirement you want - 45 is not too late to do it at 65 - but that is where I would look at 15 vs. 30 year mortgages for a 45 yo looking to check out at 65. Can I still fully fund my retirement w. a 15 year mortgage? What are my plans for the mortage money from 60 (payoff) to 65 (retirement)?
The only problem I can think of is that with a 30 year mortgage after 10 years you don’t own much in principal. I don’t have the charts on me but I remember reading in a book that if you intend to move around alot a long term mortgage is a bad idea. I think with a 30 year you’ll only have paid off about 10% of the house after a decade, with a 15 year you’ll have paid off over half of it. So if you intend to move in 10-20 years a 15 year mortgage (or a 30 year with an extra 10-20% in principal payments) is the smarter idea. If not and you just get a 30 year and move in 10-15 years you won’t own much equity.
Yeah. If you get a 30 year and move out in 15 years you’ll still owe 211k. If you get a 30 year and make an extra 10-15% in principal payments on top of the mortgage payments you’ll only owe about 100-150k.
five times your income? Holy cow! Quick Excel calculation at 6.5% for 30 years indicates that that’s 62% of my net pay! So I could live in a palace but then I’d have to drive a Hyundai and use a Windows computer.
Thanks for the advice. I looked a bit more into this last night and I think I understand the situation a bit more. The idea of taking a 30 and paying extra seems like a very interesting one, especially as far as mixing in the retirement planning issue. The links supplied offer a lot of help and I appreciate your replies.
Tonight, I’ll crack open a beer and get this all straight. If it gets too complicated , I’ll convert it all to a suitcase full of cash and head for the Caymans
I’d take out the longest mortgage I could. For one thing, paying that interest will keep you over the threshold for itemizing on your taxes, so not only will you deduct the interest, you’ll be able to deduct state and local taxes, property taxes, etc where you might not otherwise.
Another angle- suppose your mortgage interest is 6 1/2 % but your house appreciates in value by 8% each year. With tax breaks, you’re really only paying an effective rate of 4%. So when you borrow at 4% and earn at 8%, it makes sense to do this on the largest sum of money that you can.