Homeowners taking out 10-year mortgages

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

[Texas Eagle]

But if you're house is paid off, why can't you just borrow against it?

[mylife]

This is a Vey Vey Sirous Thread!

Seriously There seem to be liquidity issues with both strategies If one hedges thier bets by doing a little of each of the dominant theories on this thread would that not be the prudent thing to do?

[Texas Eagle]

Yep you own your house all right, just got laid off, your house's value went up and BAM your property taxes went up but instead of having a substantial cash or liquid reserve, ya gots zilch. I never said I was putting 100% of my income into my house payment. I simply said I was making the 15 year payments on a 30 year mortgage.

[F16Fighter]

"I'm seriously considering doing this. I have a 30 year note at 6.25 with 20 years to go."

An option with only about $70 in closing cost would be a 15 year Equity Loan @ 5.5%

[Skywalk]

I suppose it depends on your circumstance. As I said, if you're rolling in money, and your house isn't too much relative to your income, then why not pay it off sooner?

BUT, if you're normal, my guess is that it makes no sense to forego the advantages to the long-term approach.

[HostileTerritory]

Have you considered just refinancing your mortgage as a 20 year? You'd have the same exact term, but you'd be paying at most 5.25%, more likely 5%. If you can stretch to a 15 year mortgage you get a lower interest rate and you may still end up paying less per month than you are now.

Forget the 10-year.

I've refinanced twice in the past three years. I'm only 26 and I've already gone from a 30-year when I bought a few years ago to a 20-year today. I can not encourage people strongly enough to check out a mortgage calculator with today's rates.

[Texas Eagle]

Okay, using the link I provided, figure out how much your monthly payment would be on a 30 year loan and how much it would be on a 10 year loan.

This will be easier if you open 2 or 3 browser windows. Then look at the first years interest on the 10 year loan and the first years interest on the 30 year loan.

If you made the 10 year payments on a 30 year loan, what is the difference in interest you paid in the first year alone?

[Skywalk]

I don't know all your circumstances, so it'd be difficult to judge.

[Fred Mertz]

About $530 a month with a 10 year, plus whatever all the leechers that get a piece of the pie get out of me. I used 5% as a guesstimate. Thanks for the link, I think I bookmarked it from you or someone else not too long ago.

So I suppose I could afford a dollar a day to cut my time in serfdom from 20 years remaining on a 30 year loan, to 10 years. I really don't know what I've been waiting for.

[mylife]

I suppose it depends on your circumstance.

BINGO! Since we cant control circumstance...Hedge your bets!

[Dog Gone]

Hmmm, no wonder there are so many opinions about this. You can skin the cat in countless ways.

[AlaskaErik]

But you could just as easily lose your job in the 13th year of a 15 year note and have a higher payment to come up with than if you have a bad spot.

I may lose my job, or I may not. But one thing is for certain...if I don't refinance, I still have $90k of interest to pay. A refi will lower my rate 2 pts and increase my monthly payment by $66.00 and cuts my interest down to $40k. Yeah, I lose my interest deduction sooner, but so what? That means that $50k won't be going to service my debt. That's money in my pocket. My lost tax benefit is no where near that amount.

[Skywalk]

But this isn't about tax deduction though.

Your payments relative to your income and via inflation will be significantly cheaper the farther you go.

The more money is spent immediate to the time of borrowing, the closer to its real value. Which is high value cash that could be put elsewhere rather than the bank.

[aShepard]

WHATEVER YOU DO!

NEVER, NEVER, EVER CONSIDER WASHINGTON MUTUAL AS YOUR MORTGAGE LENDER.

I'M VERY SERIOUS, THEY HAVE NO CLUE WITH CUSTOMER SERVICE, HAVE NO ABILITY TO POST PAYMENTS PROPERLY, HAVE NO KNOWLEDGE OF HOW TO READ A CUSTOMER'S STATEMENT; WILL NEVER RESPOND TO AN INQUIRY FROM A CUSTOMER.

I'VE BEEN IN A MAJOR BITCH SESSION WITH WASHINGTON MUTUAL FOR MANY MONTHS, THEM DECLARING FORECLOSURE, WHILE MY PAYMENTS HAVE BEEN HELD IN THEIR BLACK HOLE "SUSPENSE ACCOUNT - FULLY CURRENT" WHILE THESE A-HOLES CAN'T FIND THE ACCOUNT ACTIVITY.

!!!NEVER, NEVER, EVER, BE SERVICED BY WASHIGTON MUTUAL!!!!

((Craig Davis, President, are you listening??)

[Centurion2000]

bump ... interesting

[Tauzero]

"Kinda thinking out loud as I'm typing, that's paying $50,000 early over 10 years to save $100,000, or a 200% return on my investment. Annualized, that's 20%,"

Actually it's a 100% return, which annualizes to a 7.18% return.

(Rule of 72.)

[Texas Eagle]

I used 5% on the 15 year as a guesstimate also.
I used 5.5% on the 30 year as a guesstimate.

I think that's reasonable.

Now, look at line 10 on the 10 year calculation window and look at line 30 on the 30 year calculation window.

Now looking at column 1 only, what is the difference between your total payments?

[Mannaggia l'America]

But if you're house is paid off, why can't you just borrow against it?

That's my point. What if interest rates are 10% or 15% when I need the money in 10 or 15 years? What if I have no job or lower income at that time and a bank won't lend me the money because I can't pay it back?

Let's say you have a house worth $250,000 and it is totally paid off. You lose your job. You now need $50K or $100K of that money. You can't get it - you won't qualify for the loan. But you say "it's my money"! No, it's not. It's your non-liquid asset.

If I would have been stashing some of that money away as cash instead of putting it all the house, I'd have some of that money to live on.

[Dog Gone]

If I invest 50,000 and make 50,000, that looks like a 100% rate of return to me. Or am I somehow not getting my 50,000 invested back?

[Texas Eagle]

That's my point. What if interest rates are 10% or 15% when I need the money in 10 or 15 years? What if I have no job or lower income at that time and a bank won't lend me the money because I can't pay it back? Let's say you have a house worth $250,000 and it is totally paid off. You lose your job. You now need $50K or $100K of that money. You can't get it - you won't qualify for the loan.

But you can sell the house couldn't you? And if the house is totally paid off, whatever you sell the house for, all the money goes into your bank account. Whereas if you owe money on the house, you will only get what's left. Am I right?