Homeowners taking out 10-year mortgages

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

[speekinout]

If your retirement income is allocated to mortgage payments you won't have much left over for house upkeep, emergency medical bills, buying an occassianal car and taking vacations, will you?

Idjit.

[AdamSelene235]

fyi

Bummer for Fannie's bondholders, huh? Hope they hedged the pre-payment risk properly.

[Southack]

The phrase "pre-payment risk" is an oxymoron; when someone pays off their loan early due to a pre-payment, there is no risk. You've (the bank / person who loaned out the money to the borrower) got ALL of your principle back PLUS all of your interest to date as well as ALL of your fees (fees which would have normally been budgeted to cover a much longer time-frame, in fact). Moreover, you or someone else is making NEW money on the new fees for the re-finance/pre-payment.

Sure, you might be getting less overall interest, but it is a FACT that you are getting more in fees as well as 100% of your original principle back.

Ergo, no "risk".

It does give me a good chuckle though when I hear someone claim that getting your money back early is a "risk", though!

[Dec31,1999]

The totally risk-averse person should just go ahead and pay down the mortgage - which is a nearly risk-free return equal to the mortgage rate.

Actually, the return effectively exceeds the mortgage rate, as money not earned cannot be taxed.

[rwt60]

Is it really wise to make investment decisions based on today's tax law?

That's a good point. The standard deduction for married couples just went to $9,500. Once you add your mortgage interest to your other itemized deductions, you have to exceed the $9,500 threshhold before you reap any benefit from mortgage interest, and then only by the amount your total deductions exceed standard. In my opinion, the value of a mortgage interest deduction is overstated. Your mileage may vary depending on your tax bracket and filing status.

[Dec31,1999]

Better said: Money SAVED cannot be taxed.

[AdamSelene235]

It does give me a good chuckle though when I hear someone claim that getting your money back early is a "risk", though!

When debt to equity is 60 to 1 and you have an enormous illiquid derivatives hedging operation EVERYTHING is a risk.

BPT is doing great, as is DOM, PWI, and PVX. DOM is a personal favorite of mine simply because it is a local Alabama trust based upon abandoned coal mines along the Warrior River basin. By injecting water, the coal seams produce natural gas in marketable quantities, earning a nice 10% dividend check for its shareholders (something that every BPT owner can likewise appreciate). Who would have thought, some 20 years ago, that there was real money in abandoned coal mines?!

Life is good!

And even a gloomster can justify owning them as an inflation hedge.

Life is not utterly unbearable!

[Texas Eagle]

Looking only at total payments is an economically naive approach that emotionally and irrationally ignores the time value of money.

I'm sure my bank wants me to think the same thing.

[cookcounty]

Wow. 15 months ago I refinanced and asked about a 10-year, but all the banks acted like I was speaking Khirghizian, basically told me there wasn't such a thing.. Maybe I should try again, but the process of re-fi is such a pain, and then they sell your mortgage---I had 4 banks in the first 7 months, which has finally stabilized (for now!).

[E. Pluribus Unum]

Idjit.

Instead of paying $125,000 interest on my loan over 30 years I am going to pay $30,000 interest in 9 and be free and clear and you call me an idiot.

I bet your related to that banjo-playing, albino hillbilly in "Deliverance."

[E. Pluribus Unum]

...but the process of re-fi is such a pain, and then they sell your mortgage...

Countrywide's rates are as low as anybodies, and they don't sell the paper. They make it very easy to make accelerated payments, also.

[Atlas Sneezed]

"If your retirement income is allocated to mortgage payments you won't have much left over for house upkeep, emergency medical bills, buying an occassianal car and taking vacations, will you?"

If you invest the difference in payments every month, you will have a fat nest egg for all these things.

[E. Pluribus Unum]

If you invest the difference in payments every month, you will have a fat nest egg for all these things.

Unless the market implodes just about the time you need it.

Not that that would ever happen. </sarcasm>

[sysvr4]

Unless the market implodes just about the time you need it. Not that that would ever happen.

And I'm sure you can name for us, very specifically, the 30-year time period during which the market "imploded", yes? Hell, name for me the 30-year period where the market didn't beat the annual effective rate of 3-4% you can borrow money at now...

Jeff

PS - Hint, there was never any such period. The market is positive for EVERY 20 year period in its history.

[speekinout]

OK. As I have said before, if you have plenty of money, then having a bunch in your house is probably no big deal. But if that is most of your net worth, you are just a short time from trouble.
Everyone needs a ready cash stash for health care or a jobless interval or whatever. That's much more important than equity.

[Timmy]

You better look again. The rates for a 10 year mortgage are about 4.75. That has to be a big payoff for you. BTW, I just went to a 10-year mortgage.

[griffin]

"How do you feel about borrowing money at 5% and receiving capital losses of 10%? That's far more more likely than any kind of gain. Or 50% losses? Not at all out of the question. The banks aren't paying .02% interest on your savings accounts for no good reason."

You're daffy. If you think that a long term investment in a respectable mutual fund will not gain you a better return than you pay out in a low interest rate mortgage...well...you just have a lot to learn. Over the course of 30 years, a nice 10% return is conservative. To take fund performances of the last two years and use that as a basis for argument is naive and frankly, silly. One would have to be pretty dense not to borrow money at 5% and use it to gain returns at 10%....afterall....how do you think BANKS make money?? Same principle. But...do whatever you want.

As for me...I'd borrow all I could against my house to invest in a decent performing index fund for the long haul. Cheap money.

[jehosophat]

Daschle is deeply saddened!

[FreeperinRATcage]

I would...but I no longer have A credit (sigh).