By JLP | September 10, 2010
I just read A 15-Year Mortgage Isn’t for Everyone over on Yahoo Finance. The author basically says what I have said in the past.
According to the article, more people are choosing the 15-year mortgage than during the past. Why?
The financial situation of the people capable of refinancing today is a factor in the shift, Walters said. These people typically are homeowners with the best credit and the most equity—and, therefore, most suited for a shorter-term loan.
But there might be some psychology at work. “We’re seeing a different view on debt than maybe we’ve seen in the past,” he said. Today, homeowners are saying, “I really want to pay this off. I’m going to bite the bullet and take the payment and work toward paying this down.”
I will admit that I like this new shift in thinking. I think it’s good for people to have a fear of debt. But, I think that fear of debt should be directed at credit cards and other unsecured debt. I call that “bad debt.”
Anyway, the article mentioned something that I thought was interesting:
“There was a drive a couple of years ago to take out the biggest mortgage that you could and use all of the money you would have otherwise had in the house and put it into stocks and bonds — to think of your house and mortgage as part of your entire investment portfolio,” said Amy Crews Cutts, deputy chief economist for Freddie Mac.
That’s not what I remember people doing a few years ago. I remember people taking out their equity to pay off other debts or to take vacations or to buy a car. I don’t remember people using their equity to buy stocks. I’m sure some people did this, but I don’t think the bulk of them did.
Anyway, the article mentions that 15-year mortgages aren’t for everyone. I agree. I think a person needs to do the math and look at their budget. If flexibility is important, then a 30-year is the way to go. Extra payments can always be made to help pay off the loan faster (if that’s your thing). Also, consider what other ways the extra payments towards the principal can be used. Should a person be paying down their mortgage faster if they aren’t maxing out their retirement plan? All things to think about.
• How Much Mortgage Can You Realistically Afford? I apologize for the poor layout of this post.