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From: ark@alice.UUCP (Andrew Koenig)
Newsgroups: net.invest
Subject: Re: Question about Home mortgages
Message-ID: <3796@alice.UUCP>
Date: Sun, 2-Jun-85 13:13:39 EDT
Article-I.D.: alice.3796
Posted: Sun Jun  2 13:13:39 1985
Date-Received: Tue, 4-Jun-85 05:27:56 EDT
References: <11121@brl-tgr.ARPA>
Organization: Bell Labs, Murray Hill
Lines: 22

>> Which is better, a 15 year loan as 12.25% or a 30 year loan at 12.75%?

>> 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.

> How can you say that the 30-year term gives you everything the 15-year term
> does?  That is only true if you start from the first mortage payment paying
> the additional principal payment like you were paying on a 15-year loan.  If
> you do not and delay any payment then two things will happen:  1.  You will
> be paying less on the loan balance and 2.  You will therefore be paying more
> interest on the balance.  Most people, if given the choice will delay the 
> payments and hence in the long run will be paying more than twice the amount 
> of money in a 30-yr versus a 15-yr mortage.

I can say it because it is true.  You have the option of treating a 30-year
loan as if it were a 15-year loan or not.  This is what I mean by
"increased flexibility."  I'm afraid I don't see it as a disadvantage.