« Gowanus Super 8 Opening Soon Walkabout with Montrose: A Mighty Fortress: Conclusion »
May 26, 2009
15-Year Mortgages Grow in Popularity
In this weekend's Real Estate section, the Times had an article on the increasing popularity of 15-year, fixed-rate mortgages: "Brokers and mortgage industry executives say that these loans are becoming especially popular among people who want to shed debt more quickly, and in light of the current economic atmosphere, that goal is perhaps more widely applicable than ever. Of course, debt shedding comes at a price. Those borrowing $400,000 on a 15-year loan, with a 4.375 percent interest rate, the average rate earlier this month, can expect to pay about $3,034 a month, compared with about $2,056 a month for a 30-year fixed-rate loan with a 4.625 percent average rate. (The payment excludes costs like property taxes and insurance.) Because a 15-year loan also has 180 fewer interest payments than a 30-year loan, the borrower with that 15-year loan would pay $194,000 less in interest over the life of the mortgage." Any readers considering them over 30-year loans?
Photo by Rev Dan Catt
Trackback Pings
TrackBack URL for this entry:
http://www.brownstoner.com/mte/mt-tb.cgi/9894
Comments
If I ever have to get a mortgage again, I'll be going for the shortest duration I can comfortably afford. I'd rather not be a slave to the machine.
Posted by: the chicken at May 26, 2009 10:21 AM
people shouldnt be allowed to "buy" property unless they can pay for it outright. meaning 100 percent. THAT is how society should work. if you cant afford something outright, you shouldnt be able to purchase it and claim you "own" it.
*rob*
Posted by: PitbullNYC at May 26, 2009 10:29 AM
I would LOVE if that came to pass Rob - property prices would instantly plummet and I'll be able to pay upfront in cash. Won't ever happen though...
Posted by: the chicken at May 26, 2009 10:51 AM
And rob would have to pay his whole two year lease in advance. No borrowing by the month!
But seriously, you can always take a 30 year fixed and pay it off on a 15yr basis. That gives you some leeway if something goes wrong.
Posted by: denton at May 26, 2009 10:55 AM
A 15 year mortgage makes sense if its cost is significantly lower than that for a 30 year mortgage. That's not really the case right now. You're better off taking a 30 year and making voluntary prepayments when your resources permit.
Posted by: Boerum Hill at May 26, 2009 10:58 AM
hmmm good point denton lol. i didnt think of that. then maybe leases shouldnt exist either. it should just be month to month.
*rob*
Posted by: PitbullNYC at May 26, 2009 10:59 AM
rob, will you ever STFU? leases shouldn't exist? moron.
Posted by: randolph at May 26, 2009 11:01 AM
I agree with Denton and Boerum Hill. Pay more towards your principal whenever you can. You just need a little more discipline.
Posted by: lostintranslation at May 26, 2009 11:03 AM
would love NO mortgages - houses will be 90% off peak if only all-cash purchases
Posted by: more4less at May 26, 2009 11:20 AM
Boerum Hill, look at the NY Times chart again - 30 year is 5.41%, 15 year is 5.19% (ie 22bps difference). Doesn't sound like a lot but it adds up over the years.
I agree that it's good to have some flexibility though as no-one really knows where they will be in 10 years time.
Posted by: the chicken at May 26, 2009 11:24 AM
Gonna have to second randolph on this one.
Posted by: SnarkSlope at May 26, 2009 11:27 AM
I would think that a 15-year mortgage means that the bank is taking significantly less risk, and I would have assumed the spread would have been much bigger than just 22 bps. I would have hoped for 100 bps.
Posted by: bkre at May 26, 2009 11:44 AM
"THAT is how society should work."
Fortunately, no one has actually asked Rob to re-engineer society to work to his exclusive benefit.
Posted by: East New York at May 26, 2009 11:48 AM
I think I'd get a 30 year and pay it off in 15 (or 20, or 10, depending).
Posted by: northsloperenter at May 26, 2009 12:02 PM
I just closed at the beginning of the month and my bank of choice didn't offer 15 year, so I went with 30 year.
But with 4.5% interest and no pre-payment penalty I'm sure I'll have it paid off before 15 years are up. I also have the comfort of knowing if something were to happen I've got the lower payment.
Posted by: Flatbushrising at May 26, 2009 12:07 PM
Ditto what Flatbushrising said.
Posted by: SnarkSlope at May 26, 2009 12:10 PM
Rob are you trying to be provocative or are you just a moron?
Posted by: fsrg at May 26, 2009 12:13 PM
"debt shedding comes at a price"
You've lost me, Gab.
***Bid half off peak comps***
Posted by: Brownstones Half Off at May 26, 2009 12:14 PM
"Rob are you trying to be provocative or are you just a moron?"
I believe Rob is realizing he may have made some bad choices, and now he would like to see the rules change. But that's not going to happen.
Posted by: East New York at May 26, 2009 12:23 PM
People are debt shy...and they should be. Spending beyond your means is different than taking on responsible debt.
IMHO, the time/value cost of money today greatly weights in favor of a longer duration.
If you've always been financially responsible, and you buy within your means, then you should not look forward to giving the bank your money sooner.
OK, there's the amt of interest saved (but 45% of this is deductible ultimately, so cut that number in half (more on this later)). But your payments are much higher now (while dollars you use to pay them with are worth more).
However, we are likely headed into a long period of extremely high inflation, and a long-term weakening of the dollar. We've had no real inflation for 20 years.
So buy within your means, and allow the bank to loan you money in today's value that will be worth substantially less when you repay it in years 15-30 (and our taxes will be raised in the future, so you will get a larger deduction as well...)
Posted by: MoneyForNothing at May 26, 2009 12:26 PM
45% deductible - highly doubt that applies to most here looking to buy a house cause they most likely in AMT status on tax returns.
Posted by: more4less at May 26, 2009 12:34 PM
Couldn't agree with MoneyForNothing more. I am debt averse but now is the time to lock in the lowest rates for the longest period of time. I signed a 4.5% mortgage a few months ago. I'd love to pay this off early but why would I? In the future inflation and interest rates will be higher that 4.5% and I will be sitting on a loan from the bank that is less than inflation.
Posted by: tcb_bkn at May 26, 2009 12:44 PM
Anyone have access to the different average life computations for 15 versus 30 year mortages? I bet they're not that different.
I.e. people pay of 30 year mortgages in around 20 years on average anyway, so I don't think the 15 years are that much different. Having the interest tax deductible is pretty nice too. If I can lock in a 5% or lower rate, I'm not pre-paying a single dime of my mortgage, just saving the money instead.
Posted by: justinm at May 26, 2009 1:05 PM
"Brokers and mortgage industry executives say that these loans are becoming especially popular among people who want to shed debt more quickly, and in light of the current economic atmosphere, that goal is perhaps more widely applicable than ever. "
RRRRRRRRRIIIIIIIIIIIIIIIGGGGGGGGGGGGGHHHHHHHHHHHHHTTTTTTT!!!!!!!!!!!!!!!!!
You are a bunch of stupid assholes! We are on the verge of economic collapse and everyone is applauding this piece of nonsense!
Keep you eyes right here..
http://www.bloomberg.com/markets/rates/index.html
The jig is up in the Bond Market and everyone is siding to the door. 15, 30 or 20 mortgages wont make a difference, it's over, done and kaput!
The What
Someday this war is gonna end...
Posted by: Return of The What at May 26, 2009 1:51 PM
I always go for 30 years, simply cause i can always pay off earlier :p.
Posted by: armchairwarrior at May 26, 2009 1:52 PM
"Couldn't agree with MoneyForNothing more. I am debt averse but now is the time to lock in the lowest rates for the longest period of time. I signed a 4.5% mortgage a few months ago. I'd love to pay this off early but why would I? In the future inflation and interest rates will be higher that 4.5% and I will be sitting on a loan from the bank that is less than inflation."
The Asshead award goes to....
Very soon interest rates will go up and all the "equity" will turn to radioactive dust.
"I will be sitting on a loan from the bank that is less than inflation."
The "Asset" will be worth 50% less!
The What
Someday this war is gonna end..
Posted by: Return of The What at May 26, 2009 1:54 PM
Why on earth would you lock into having to pay a higher mortgage if you can pre-pay a 30 year without penalty? That's just asking for trouble. It's not like there is a big gap in the rates.
Posted by: TownhouseLady at May 26, 2009 2:14 PM
Hey The What....
Love the apocalyptic prophesies. I might not be fully in your camp, but lets just say NYC RE (and our economy) took the train to looney tunes-ville prior to the tech boom and hasn't come back since.
That said,
Not suggesting anyone pay even remotely close to asking price on any property ion brooklyn. I'd say roll back fully to 2002-2003 price per SF if you want to find more intrinsic value....
That said, when I do get my loan to purchase at said discount, no way I'm paying more quickly with ever cheapening dollars...
To any buyer: so long as you can make the payments, and are a value shopper, keep your dollars and let the banks loan you them now. in 20 yrs you'll be paying back with pennies-on-the...
***Objects in Rear View Mirror are Closer Than They Appear****
Posted by: MoneyForNothing at May 26, 2009 3:13 PM
The What:
When mortgage interest rates rise, the price of houses will fall.
But then when inflation kicks in, won't the price of houses rise?
Posted by: mopar at May 26, 2009 3:43 PM
"But then when inflation kicks in, won't the price of houses rise?
"
You know something Mopar? A coulce of months ago you ask me about inflation and made some good points (faints) but the Bond Market is smelling the stinky shit right now! Remember DIBS was jacking off to Quantitative Easing? Well the Bond Holder decided to "Offload" risk back to America, I think it was a Asshole Put under the market! That was 100 basis points ago and The Fed is underwater on all that shit!
(http://en.wikipedia.org/wiki/Quantitative_easing)
The Bond Market had a big sell off today!!!!
http://www.bloomberg.com/markets/rates/index.html
What does it mean???? Well it starts with a F, rhymes with Duck and makes your asshole real sore! Goodbye retards and thanks for the good times....
The What
Someday this war is gonna end...
Posted by: Return of The What at May 26, 2009 4:06 PM
Let's say you are 30, a 30 year mortgage means you will own your property free and clear when you are 60. Realistically, you're going to be well past your working prime at that point so you'd better have your retirement nest egg sorted out by then (or have kids that can support you) - social security is not going to be around in any meaningful way at that point.
To say that your house will be your retirement fund means you will have to downsize to something cheaper and you will live off the difference. But nobody knows what the prevailing property prices are going to be 30 years from now. Maybe at that point the difference might only provide 5 years of living expenses (which would already be pretty generous compared to long-run multiples).
So if you can't live off your house then you are going to have to save for your retirement. Let's say you have a 40 year working life and 20 years in retirement before you pop your clogs.
In retirement, you'll probably spend less money (no mortgage and no commuting expenses, school fees, etc) so let's be aggressive and assume it falls 75% from your working life expenses.
This still means that you need to put aside 1/8 of your post-tax income if you want an okay retirement. This is assuming that your savings only keep track of inflation. Of course, you can get away with saving less if you are able to achieve inflation-beating returns on your savings - but (as investors burnt in the market in the last year can attest to) not everyone gets to win that game.
So ask yourself a simple question: Do you consistently save more that 1/8 of your post-tax income? Now you know why I want to pay off my mortgage as soon as possible.
Posted by: the chicken at May 26, 2009 5:03 PM
Right -- bonds are down, government will jack up interest rates to attract money, housing prices will decrease, inflation will rise, housing prices will increase. I think. Right?
Posted by: mopar at May 26, 2009 5:03 PM
"government will jack up interest rates to attract money"
WRONG!!!!!!!!!!!! The market will force the Government to raise interest rates!
"housing prices will decrease"
WRONG!!! WilL CRASH!!!!!
"Inflation will rise"
WRONG!!!!! When the Bond Market is finished, the deflation collapse will be awesome!!
The Mutant Asset Bubble is dead in 5 months!
The What (RUN!!!!!)
Someday this war is gonna end...
Posted by: Return of The What at May 26, 2009 5:14 PM
Cool!
Posted by: mopar at May 26, 2009 6:48 PM
Latest Restaurant Additions
-
Le Barricou
added November 20, 2009 12:00 PM in Williamsburg -
Der Schwarze Kölner
added November 19, 2009 12:00 PM in Fort Greene -
Oak Wine Bar & Café
added November 18, 2009 12:00 PM in Williamsburg -
Mr. Wonton
added November 17, 2009 12:00 PM in Park Slope -
Casa Rosa
added November 16, 2009 12:00 PM in Carroll Gardens -
Cousin John's Café & Bakery
added November 13, 2009 12:00 PM in Park Slope -
Elote
added November 12, 2009 12:00 PM in Williamsburg -
Miracle Grill
added November 11, 2009 12:00 PM in Park Slope -
Phoebe's Cafe
added November 10, 2009 12:00 PM in Williamsburg -
Ruthie's
added November 9, 2009 12:00 PM in Clinton Hill, Downtown Brooklyn
Post a comment
Please be patient while your comment is published. It may take a moment.