15yr vs. 30yr - Posted by Jennifer

Posted by Mike on February 02, 2002 at 10:26:57:

You make some good points.
It really comes down to goals. Some people want to have a free and clear house - some people want tax write offs and cash flow. Different strokes - for different folks. You are also assuming a person would be discipline enough to actually use the excess cash constructively - which most do not.

I wouldnt say 10-12% is a “modest” investment return. The highest perfroming asset class is stocks which in the last 50 years have an average return of around 12 1/2%. The stock market action from 1995 to early 2000 made a lot of people forget that 12% is a good return (although many have learned since then).


15yr vs. 30yr - Posted by Jennifer

Posted by Jennifer on January 31, 2002 at 10:30:06:

I understand that you accumulate equity much faster with the 15 yr, but with the 30yr you are exposed to more interest which is a valuable tax deduction. It seems as though by taking a 30yr mortgage and having a greater cash flow would enable an investor to utilize the extra funds to create a return in excess of the general appreciation rate of the house- because by investing more money sooner in a house your money is tied up and only increases in value relative to the house appreciation rate. I can see that this strategy might be a good investment in a high appreciation area, but it seems as though a keen investor could achieve a very modest return of 10-12% elsewhere. That way you make your money work for you two fold (with the 30yr mortgage)- you are getting extra tax breaks from more interest and you are getting more cash flow to invest in vehicles yielding higher returns. In addition by taking a 30yr mortgage you get more cash up front relative to the 15yr mortgage and from a present value perspective this is a much better investment, ceteris paribus.

Does anyone have any other thoughts on the subject? I encourage any comments.

Re: 15yr vs. 30yr/REPLY - Posted by Thunderhead

Posted by Thunderhead on February 03, 2002 at 15:49:35:

Jennifer: I am in the same position trying to determine if a 30 year loan would not give me more flexibility than a 15 year loan.

Presently, I am about to close on a rental property that has a small positive cash flow if I go with a 15 year mortgage. Obviously, a 30 year mortgage would give me better cash flow, and as they years go on, and rental income increases, cash flow will be even better. I am disclipined enough to make principle only payments if there is excess cash at year end, thus cutting the 30 years down substantially.

As Mike said, I think it all depends on your goals. My goal is to retire in 15 years, but that doesn’t necessarily mean I have to be totally debt-free, either.