From: jfox@hooksett.East.Sun.COM (John Fox - SunExpress IR)
Newsgroups: misc.invest.real-estate
Subject: Re: 15 year vs. 30 year loans
Date: 18 Aug 1992 12:58:33 GMT
Organization: Sun Microsystems, Inc.
Distribution: world
Reply-To: jfox@hooksett.East.Sun.COM
NNTP-Posting-Host: hooksett.east.sun.com

In article 15526@nas.nasa.gov, rcarter@gaudi.nas.nasa.gov (Russell L. Carter) writes:
> In article <16obd6INNt7a@seven-up.East.Sun.COM> jfox@hooksett.East.Sun.COM writes:
> >In article 19578@fritz.filenet.com, asylvain@felix.filenet.com (The Chipmunk) writes:
> >(text deleted)
> >> Despite the fact that 15 year loans sometimes go for a lower interest 
> >> rate than 30 year loans, I STILL maintain it is MORE ADVANTAGEOUS to
> >> just get a conventional 30 year loan.
> >> 
> >> If you wish the advantages of higher equity accumulation, simply compute
> >> the difference between payments, and apply that to the principle.  The
> >> results will be ROUGHLY the SAME as a similar 15 year loan, but you have
> >> the option of NOT paying the extra if you need the money for something 
> >> else.
> >> 
> >> Like food!
> >> 
> >Although this sounds good on paper, I think a primary advantage to the
> >15 year mortgage is that you *have* to pay the extra. If you try to
> >tell yourself you'll pay off extra each month, many people probably
> >won't. Rather, they'll *find* a use for the extra mortgage money, and
> >fool themselves that it is more important than reducing the term of the
> >mortgage (like going to the fancy restaurant instead of the inexpensive
> >one).
> >If someone is in financial trouble, chances are an extra $150 or so
> >per month is not going to make a difference, but when all is said and
> >done, most people would be better off not given the option each month.
> >
> >
> >John
> >
> 
> 
> This is simply preposterous.  If you can't manage your funds, then just
> admit stupidity, frivilosity, dilletantism, dandyism, etc., and do
> what the newspaper or your favorite banker advises you to do.  Chances
> are you'll do no worse than any of the other lemmings.  If you can
> manage your money, a choice like that between 15 and 30 year mortgage
> is the sort of choice one looks for when you want to maximize net
> income while managing risk over time.  'Course, you got to think
> abit, too.  Hmm, maybe that *is* too much responsibility for "most
> people."
> 
> I never could understand why people went for 15 over 30 year mortgages,
> given my analysis of the flows and risk of both approaches.
> I was quite interested to see that "The Chipmunk"'s analysis agreed
> with my own.  The math really isn't very hard, let's keep looking
> at these claims objectively, using mathematically derived facts
> as the basis for comparison.
> 
> Course, if you've got an angle on how to make money off the psychology
> of the masses ...
> 
> Russell


Maybe you and I can manage money, but I think your assumptions on the
rest of society are a little off.
People run up credit card after credit card, live month to month saving/
investing nothing. Call them what you want, but they represent a big chunk
of homeowners. Given the choice, some/many/most would rather have it
all spelled out and not be given the option - or at least they would make
out better in the end without the option.
Again, if you're are in a position where you have to pay less on your
mortgage so you can feed your family, it's most likely true that a
even a 50 year schedule wouldn't help. A person in that position is not
going to be saved by having the option of paying the 30-year amount vs.
the 15 year - they probably should not have mortgaged as much as they
did in the first place. I think anyone who put themself in that situation
was pretty frivilous to begin with.
In general, cases where you truly take advantage of the option your plan
provides will be few are far between.

John


















































Newsgroups: misc.invest.real-estate