Mortgage length

[Vishenka69]

DH and I can't agree on length of mortgage we should take. We can technically pull off 15, 20, 25 or 30. All of those will be within my comfort level in terms of monthly payments. The $ difference would be about $500 a month. DH is leaning toward 15 years, as he hates having debt for longer than necessary. I'm leaning toward 20 or 25 because I feel that I can find better use for that $500 for now. Like I mentioned before, we'll need to buy EVERYTHING for the house and I can sure use that money. The rate is obviously better at 15 years though. Should I just stretch my buying a bit and take the lower rate?

[ladymoreta]

Re: Mortgage length

You can go with the 20 or 25 year for the lower payments, but in a year or so start paying more each month. That goes directly towards the principal, so you'd still be saving a ton on interest.

[DCJenn]

Re: Mortgage length

What she said-

We have two 30 year mortgages but they get extra payments every month.

J.

[Vishenka69]

Re: Mortgage length

That's a great idea! I didn't even think of that. We'll also have to take a jumbo mortgage and some friends advised to take max on regular and then home equity for rest. Did anyone do that? I have mixed feelings about that.

[GrayMatterWife]

Re: Mortgage length

The issue is what you would be doing with the money if you took a longer mortgage--why are you looking at different terms? If you are looking at a longer term mortgage so that you can free up more money for investment, then you just need to determine what you can do with that money. If you could take the $500 and invest it at a rate that gives a higher return than your mortgage interest rate, and the real costs of doing so (investment costs, taxes, etc.) suggest you'd come out ahead, you might consider taking the longer term. However, if you are looking at a longer term mortgage so that you can have more disposable income each month, then you need to decide if you are willing to may the extra interest amount over the life of the loan for that disposable income (that is, how much is your disposable income worth to you, in real dollars?).

It's like buying a car, really: the focus shouldn't be on how much you are willing to spend per month. It should be on how much the opporuntity lost in terms of use of that money means to you.

Re: Mortgage length

I hadn't thought of the home equity loan for the balance between the jumbo and conforming loan. I guess it depends on the rate of the home equity loan.

I agree with the idea to do the 20 or 25 year and make extra payments to the principle because it gives you a little more flexibility for the costs you mentioned after moving in.

[MDPhDWife]

Re: Mortgage length

I agree with the idea to do the 20 or 25 year and make extra payments to the principle because it gives you a little more flexibility for the costs you mentioned after moving in.

I would pick the 20 year if it's not a major interest rate jump and start paying more once you've got the furniture and all the other costs associated with the move paid for.

[MrsK]

Re: Mortgage length

That's a great idea! I didn't even think of that. We'll also have to take a jumbo mortgage and some friends advised to take max on regular and then home equity for rest. Did anyone do that? I have mixed feelings about that.

I've heard of this. Sometimes lenders make you get "mortgage insurance" if you are borrowing 90% or more of the purchase price. You can avoid the mortgage insurance by taking 80% on the 1st mortgage and 10% on a 2nd mortgage or HELOC. The HELOC generally has a flexable interest rate which could be a problem if rates go up -- but remember this will be only a small portion of your obligation.

Also, the good thing about having a HELOC is that the credit is available if you ever need it in the future. You can usually pay it down and take out more money if you need it. But once you make a payment toward principal on a fixed mortgage, that money is gone.