Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP
Path: utzoo!watmath!clyde!burl!ulysses!bellcore!decvax!decwrl!glacier!kestrel!king
From: king@kestrel.ARPA (Dick King)
Newsgroups: net.taxes
Subject: 15 versus 30 Year Mortgages
Message-ID: <5608@kestrel.ARPA>
Date: Sun, 9-Mar-86 23:58:26 EST
Article-I.D.: kestrel.5608
Posted: Sun Mar  9 23:58:26 1986
Date-Received: Wed, 12-Mar-86 22:01:34 EST
Organization: Kestrel Institute, Palo Alto, CA
Lines: 50


   From: sjc@lambda.UUCP (Sandy J. Cifrodelli)
   Newsgroups: net.taxes
   Date: 8 Mar 86 14:34:11 GMT

   I would like some opinions on 15 versus 30 Yr Mortgages.
   If I refinance at current rates,
   I can afford both.
   What are the pros and cons?
   What is the tax effect of the 15 Yr loan in terms of what
   I can write off on my 1040?

   Thanks
   Sandy

A fifteen year note at a given bank will usually carry a slightly
lower rate.  This is reasonable as the bank's neck isn't stuck so far
out.  I would say that a fifteen year loan pays off faster than an
undermaintained house deteriorates, and I wouldn't say that about a
30. 

There is technically no other advantage to a fifteen year mortgage
except that usually the fifteen year rate is slightly lower, because
you can pay a 30 year note at the fifteen year rate.  You give up the
option of paying slowly, and you gain the interest rate difference.

I prefer the fifteen year note for myself, however, because of the
psychological difference.  My wife and I intend to pay at the 15 year
rate, and I would rather lose the flexibility and never have either of
us tempted to slow down the repayment.  


Of course the interest portion of the payment on a fifteen year note
decreases much faster than on a 30.  The difference is 2.5% (ignoring
the interest rate difference) in the second year and widens rapidly.
In the fifteenth year of the 15 year note you pay virtually no
interest -- in that ear of the 30 you are paying 86% as much as you
were when you started.

Think of a thirty year note as the concatenation of two notes - a
fifteen year almost-interest-only note glued to a slightly smaller
fifteen year direct reduction loan.


Ever notice that banks have no reluctance to give 30- and 40-year
mortgages to people with life expectancies and career expectancies
much less than the term?  I know someone who is 35 who got a 40 year
mortgage with no problem.


-dick