Homeowners taking out 10-year mortgages

Wall Street Journal ^ | June 2, 2003 | RUTH SIMON

[speekinout]

So when you pay off your house, will you have enough money to keep it up, pay emergency medical bills, buy an occasional car and take a vacation?
If you're sure you'll have enough cash for all of that, then do whatever makes you feel better.

Just remember that you can get a mortgage while you're working, but once you retire, all of the money you have in equity is tied up there. You can't likely get it for anything else.

[raybbr]

I don't know about demolishing it but I am sure that in the new tax cut Bush has made PMI tax-deductable.

[Texas Eagle]

Well, the word "invest" is pretty all-encompassing. You can "invest" the 100 dollars in an IRA or a certificate of deposit or a money market.

But the bottom line is, by paying off a mortgage in a shorter period of time than it is amortized, you can save yourself tens of thousands of dollars.

And after the house is paid off, wouldn't it be more fun to invest one THOUSAND dollars a month instead of one HUNDRED?

[mlmr]

I went to Lendingtree.com and let them bid. Mortgageselect won. Jason was my broker and he is good.

[Texas Eagle]

What do you mean by "hedge your bets"?

[Dog Gone]

Those are all good points, but I'm not sure that it takes into account that after 10 years, I have a great deal more disposable income which could also be invested.

Or maybe it does. Sometimes economic analysis makes my eyes glaze over.

Another problem for me in most economic analysis is that when you discount large sums of money 10 years or more into the future into present worth, you end up with peanuts anyway, especially if you use discount rates of 9% or more.

Hmmmm, much to think about.

[mylife]

What do you mean by "hedge your bets"?

Use a Little of both methods, Spread the odds so to speak.

[Mannaggia l'America]

Don't misundertand me. I'm not saying you SHOULDN'T take advantage of this opportunity. I am simply saying there is a way to save even MORE by going with a 30 year loan and making the 10 year or 15 year payments.

Absolutely, but I would not do it if it meant channeling all or most available funds into a non-liquid asset. If most of your money is tied up in a house, I think you lose a lot of flexibility.

[mylife]

Dont put all them chickens in one basket

[mylife]

Dont put all them chickens in one basket

[Texas Eagle]

Starting with $0 and contributing $5,000 annually to a portfolio averaging 8% annually would net you $72,432 after 10 years. Even a conservative 6% would net you $65,903. Is your portfolio earning 8%? If so, do you mind giving me the name of your financial advisor?

[mylife]

Sorry for the double post

[Dog Gone]

Just remember that you can get a mortgage while you're working, but once you retire, all of the money you have in equity is tied up there. You can't likely get it for anything else.

I agree with that, but I certainly don't want to be paying a mortgage after I'm retired, do I? I would think the goal would be to have no mortgage when income drops at retirement.

Either that, or liquidate entirely and be a renter. The problem with that is retirement income may be tied to a fixed pension in many cases and not rise as fast as rents would.

[Texas Eagle]

Of course you don't want to put 100% of your income into your house payment. But if you are able and PREPARED to make the 10 year payment, why not have some fun and ask your loan officer to figure out for you how much MORE you would save in interest if you amortized the loan for 30 years and made the 10 year payment.

There's two advantages to this. First, you gain some satisfaction in knowing that you will be keeping a lot of the interest that would otherwise have gone to the bank. And, should a financial hardship occur unexpectedly (and isn't that when they ALWAYS occur???), you would be able to weather the hardship a lot easier if you can fall back on the lower 30 year payment instead of worrying about HAVING to make the higher 10 year payment.

[supercat]

So if I lose my job 13 years into my 30 year mortgage, I can just default to what would be my normal monthly payment.

Further, if I'm understanding you correctly, you can "borrow" each month an amount equal to your "extra" monthly payment, with an interest rate equal to your mortgage rate multiplied by one minus your tax bracket, with no closing costs or credit approval requirements.

If you think the prospects for your current job look iffy, you can drop your monthly payments to the base amount while you still have your job, and put that money into a reserve fund. In other words, you pay a little bit extra for the longer-term (on paper) mortgage, but in exchange for that cost you get much more flexibility.

[GOPJ]

bump for later

[Mary-Bayou]

Thanks a heap!

[mlmr]

Read the thread I just posted about 2% mortgages.

[tubebender]

My wife and I owe $44,000 on our house and we are in the process of paying it off in one payment with the money from our brokerage account. Making money in any investment is a crapshoot in these times. I invested in realestate starting in the 60s and at 70 years of age it looks like I made the right choice but it might not be the thing to do in Ca today.

[Texas Eagle]

Further, if I'm understanding you correctly, you can "borrow" each month an amount equal to your "extra" monthly payment, with an interest rate equal to your mortgage rate multiplied by one minus your tax bracket, with no closing costs or credit approval requirements.

Wow. Give me a couple of days to digest that.

If you think the prospects for your current job look iffy, you can drop your monthly payments to the base amount while you still have your job, and put that money into a reserve fund. In other words, you pay a little bit extra for the longer-term (on paper) mortgage, but in exchange for that cost you get much more flexibility

Yes. And for however long you made the extra payments, you denied your bank that much more interest. And then when you get back on your feet, you go "Ha, ha!" to your bank and start cheating them out of all that interest money again.