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From: king@kestrel.ARPA (Dick King)
Newsgroups: net.taxes
Subject: Re: 15 versus 30 Year Mortgages
Message-ID: <5887@kestrel.ARPA>
Date: Mon, 17-Mar-86 12:54:24 EST
Article-I.D.: kestrel.5887
Posted: Mon Mar 17 12:54:24 1986
Date-Received: Wed, 19-Mar-86 04:40:42 EST
Organization: Kestrel Institute, Palo Alto, CA
Lines: 50


   From: rdr@inuxh.UUCP (Robert Rindfuss)
   Newsgroups: net.taxes
   Date: 15 Mar 86 19:00:14 GMT

   > <<<<
   > < 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.  

   > 
   > Fifteen years is a long time to plan on not having a really major
   > emergency or disaster strike. If you have a 30 year loan it may
   > take willpower to pay it off at a 15 year rate but you wont have
   > to refinance it if something really bad happens.
   > 

I dont understand.  If things are such that you actually are able and
willing to pay all fifteen years there is no difference between the
two loans.  If you have an emergency in the first fifteen years there
is also little difference.  However, with the long loan you are
exposed for the full thirty years.

You have to claim that the extra nine percent on the payment of the
fifteen year loan (assuming the same interest rate of 10%) makes an
unmeetable emergency so much more likely for those fifteen years that
it compensates for the extra fifteen years of exposure, or (if you are
planning to pay at the faster rate even if you take out the longer
loan) that emergencies that can be met by dropping down to the
contract payments of the 30 year note are common.  

Since most banks require the mortgage payment to be at most 1/3 of
your income or so, you are here claiming that emergencies that can be
met by trimming 3% of your income out of the mortgage payment but in
no other way are common.


   Worse than that, if the 'disaster' that struct was you losing your job, you
   would not be ABLE to refinance it.  

Lending institutions REALLY don't want to forclose.  I know of one
couple who DID refinance after a loss of a job. The bank was convinced
that they would be able to find a job within a year, and they made a
deal that a year's interest would be added to the principle, with the
payments to start again after a year (or sooner if a job was found
first) with the ending date of the mortgage postponed as necessary to
make the payment the same after the moratorium as before.

   Bob Rindfuss