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From: ark@alice.UUCP (Andrew Koenig)
Newsgroups: net.invest
Subject: Re: Question about Home mortgages
Message-ID: <3766@alice.UUCP>
Date: Tue, 28-May-85 09:51:46 EDT
Article-I.D.: alice.3766
Posted: Tue May 28 09:51:46 1985
Date-Received: Thu, 30-May-85 02:28:13 EDT
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Organization: Bell Labs, Murray Hill
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Which is better, a 15 year loan as 12.25% or a 30 year loan at 12.75%?
Answer: it depends, among other things, on what you can afford,
how much it's worth having more money available now, and so on.
To be specific, let's consider a $60,000 loan.  For 30 years at
12.75 percent, your payment would be $652.02, for 15 years at
12.25%, it would be $729.78, and for 15 years at 12.75% it would
be $749.30.

First, let's compare 30 and 15 years, both at 12.75%.  The 30-year
term is clearly superior, regardless of the time value of money or
anything else, because you always have the option of paying it
off over 15 years and you will be in exactly the same situation
as if you had taken out a 15-year loan in the first place.  Thus
the 30-year term gives you everything the 15-year term does, plus
some extra flexibility.

Is this extra flexibility worth an extra half percent interest?
That's a decision only you can make.  You are comparing a payment
of $652.02 and a payment of $729.78.  If you can afford the former
and not the latter, there's no decision.  If you can afford both
then it's really a question of how badly you need the extra $77.76
each month.