Including a Decreased Loan Life in the Mortgage Decision

When obtaining a mortgage for a new home or refinancing an existing mortgage, borrowers face a myriad of options and choices. Two of these choices are the appropriate maturity of the mortgage and the number of points to pay to reduce the mortgage interest rate. The relative advantage of a 15-year mo...

Full description

Saved in:
Bibliographic Details
Published in:Journal of Financial Planning 2003-12, Vol.16 (12), p.66
Main Authors: Lesseig, Vance P, Fulmer, John G
Format: Article
Language:English
Subjects:
Advisors
Compound interest
Cost control
Discount rates
Financial planners
Financial planning
Flexibility
Interest rates
Investments
Maturity
Mortgage rates
Mortgages
Refinancing
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:When obtaining a mortgage for a new home or refinancing an existing mortgage, borrowers face a myriad of options and choices. Two of these choices are the appropriate maturity of the mortgage and the number of points to pay to reduce the mortgage interest rate. The relative advantage of a 15-year mortgage versus a 30-year mortgage has been debated and discussed over the years. The impact of changing the spread between the 15- and 30-year mortgage rates and some explanation for the results are provided. The purpose of paying higher points is to reduce the interest rate charged on the loan. Even if the mortgage is held to maturity, the argument that the 15-year option is optimal because fewer total dollars are spent to purchase the home is seriously flawed. A client needs to consider the possibility that the life of the loan may be shorter than the maturity.
ISSN:1040-3981