Quote:
Originally Posted by Sparrow
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.
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This is probably true. But, most people don't have the discipline to make a 15/20 year amortization payment on a 30 year mortgage. The average American (at least) seems to think when they buy stuff, not how much is it but how much a month is it. This is why we see ridiculous thing like 4-6 year car loans. Most people buy more car than they really should.
Quote:
Originally Posted by koland
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.
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Really, I thought it was the opposite. But, I haven't shopped mortgages much lately.
When we got our first mortgage on our current house we went 30year fixed. After about two years mortgage rates went down quite a bit I think we refied for about 2.5% or so lower. We went to 15year fixed with basically the same payment as before. This cut around $50k or so off the interest if we went with the normal 15year amortization.
So, even if the rate is .5% or so higher for the shorter loan... I you plan to make the scheduled payment a shorter term will save you ALOT of money.
As far as the "tax deduction" loss. This is just a misnomer perpertuated by the mortgage industry. You get about 30% back of your interest payments off your taxes. But, remember, paying interest is like GIVING the bank money.
If anyone wants to send me AS MUCH of your money as you want. For every $ you send me I PROMISE to send you 30¢ back on April 15th of the next year. Hmm... doesn't sound like such a nice deal any more does it???
BOb