Quote:
Originally Posted by Sparrow
I've had a hard time convincing other people to agree with me (so maybe I'm wrong  ) but I think, for people planning to pay off their mortgage early, it's a good idea to consider getting a mortgage spanning the longest time possible.
A lot of people find the idea of a shorter-term mortgage appealing, but if you're planning early payment anyway it may not be the best option. A 30-year mortgage will have lower monthly repayments than a 20-year one - this repayment differential can be used to reduce the principle owed.
The more money going to pay off the principle, rather than interest, the more efficient the mortgage repayment strategy imho. |
The reason it works is the lower interest rate, not the time period. Longer term mortgages almost always have a lower rate than the shorter term ones. And if something happens (like a job loss or disability), the lower payment might be needed. Of course, many people went for the longer term mortgages in order to qualify for larger and larger loans they could barely pay for, falling for the "payment you can afford" spiel that used to be confined to car lots (especially used car lots) and not mortgage lending.
There are exceptions - we had a 10 year loan on our last house, as it had both the lowest rate (by far, that was a few years back and rates were nowhere near as low as now) and the lowest fees, as the credit union could keep the loan entirely in house for that time period and only had to go to an outside mortgage lender for longer term loans. It worked well for us and we sold the house a few years later when a neighbor noticed us packing up and starting to do cleaning, never even listing it and for the first number that popped into my head. I've missed it and wished we'd kept it as a weekend place (but that would have meant a loan on this house), up until a couple of weeks ago - from the upper part of the property, you can see the Kingston Steam Plant where the big ash spill happened in TN (it only affects the view there; we were on a second river, so no affect on the water and despite the complaints of those filing lawsuits, the ash has always drifted via the wind some onto properties nearby).