I'm getting ready to buy a house in early 2016 after my divorce is finalized and I'd like some opinion on this. First assume I will qualify for the mortgages, I have good income, stable employment, and a 700+ credit score. My question really boils down to this: for the houses I am looking at, around a 200k loan, I can afford to go with either a 15 year fixed or 30 year fixed at current rates. I know the benefit of choosing the 15 year over the 30 is that I pay things down quicker. But, I'm wondering if it isn't better to get the 30 year and pay down extra principal each month? The upside to doing it that way that I see is that it gives me the flexibility to ease off for a month or two if the need arises, whereas with a 15, I'm locked into a higher payment. (For the record, I could easily afford either option and I have good savings, but I come from a background of income instability so I'm always waiting for the other shoe to drop, perhaps irrationally.) Any thoughts, experiences or comments would be appreciated. Thanks!
Take advantage of low term rates, they wont last forever, I say go for 30, especially if you are a well accomplished trader.
I would say it would depend on the difference in rates. If the difference isn't much at all, maybe do the 30. But if you can save a decent amount going with the 15, and can easily afford the payments for either like you said, then do the 15. I went with 30 for my house. Partially because the 15 was a little higher payment than I wanted per month and partially because I figured these rates are great, why not take advantage of it with the 30 yr.
15 years or 30 years is the amortization, correct? The common choices for the term would be 1,2,3,4 or 5 years - to be renewed when it expires. I would go with a 30 year amortization and a 1 year term.
There are 2 important issues. 1. The "Time Value of Money" (benefit/cost to you) is exactly the same for a 15-yr loan vs. a 30-yr loan if at the same interest rate. 2. The 15-yr loan is likely at a lower interest rate, though higher monthly payment.. go with that if your cash flow can accommodate. If the rates are the same/close, you could go with the 30-yr for the lower payment... then pay it off early if/when circumstances warrant. (Scat... CFP... in addition to being a 1994, 3-category US Investing Champion, of course.)
If you going to pay down anything, pay a bit more for lower points and get the 15 year and see if you can pay every two weeks, you end up paying off 2 more payments a year and paying every two weeks the principle goes down faster, and then it is like a 13yr 11 month payoff. Yes, interest rates are low, but I always in favor of something I live in getting rid of payments altogether. Now if you talk about rental properties then go with 30 years. Let me tell you, 30 years is a long long time on something you live in. It is too easy for us to get lazy in life and want to pay less, faster you pay it off the better. On a 30yr loan, each payment is like paying close to nothing on the principle, make sure that you ask lending office if any penalties if you pay off early, they getting sneaky lately. Did you check that it not in a flood zone, they require flood insurance as that is not in regular house insurance.
You have the amortization and term mixed up. A mortgage with a 15 or 30 year amortization and a 1-year term locks in the borrower for only 1 year. The borrower is then free to renew under his terms: Pay it off - no penalties. Change lenders - no penalties. Change the amortization period. Change the term at the current rates. There might or might not be a renewal fee. Depends on the down payment - if it's large enough no insurance is required.
I have never bought anything with one year term, that is foolish, nor did I post saying anything about it either. Some of the rentals I have bought in last couple years in fine print has extra costs of paying it off early and I will never sign that, and some will charge extra fees to change lenders depending on your contract with them, they getting sneaky now, some charge renewal fees and some don't depends if you go thru a 3rd party broker. It been awhile last time "I personally" bought a home which was in the 80s, not till the city rezoned did mortgage company allow me to drop flood insurance. I had bought last house in development and next to the desert, man that water runs fast when it rains, I had to take added measures to shore up property to divert water then, now that house is like 2 miles from desert, still own it and rented.
Not for the last 20 years the 1-year terms have been foolish. Mortgage rates have been in decline for 20 years.