Home loan question.

[scotchnrocks]

yes

[krishan]

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yes

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Good. When you said the bulk of the interest was paid "upfront" earlier I think there was some confusion. It's owed upfront and your wording might have implied that it somehow wasn't. We probably just misinterpreted.

Krishan

[SossMan]

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300k loan. 2 scenarios.

Scenario 1:

new 30 year loan at 6%
payment = $1798.65
month 1
interest = $1500
principal = $298.65


scenario 2:
300k loan 6% interest rate
originally a 30 year loan taken out 15 years ago and we are going to assume it.

Here's the key, if there is $300k left on the principal, but we are 15 years into the loan, the original balance was ~$420k. Therefore, the payment on this loan is $2518.


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If you pay a 30 year fixed loan off on time over 30 years, you will pay more money in interest in the first 15 years than you do in the last 15 years. That is fact. I think you're talking about something else.

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Of course you pay more interest in the beginning of the mortgage...that's when your balance is the highest. Monthly interest due is a very, very simple calculation.
annual rate x remaining balance / 12. Since your balance is highest in the first 15 years, of course you pay more in interest in the beginning.

So what.

You said (and I'm in the industry and hear this all the time):
"If your brother could assume your loan that would be better because he would get a break on the upfront interest in a fixed mortgage."

He is basically just assuming a 15 year loan payment (or whatever term is left, I forget the original question). If the rate is lower than what he could get with current financing (including pts), then that could be a good deal...but it has nothing to do with the fact that he's 15 years into a 30 year mortgage and the "bulk of the interest has already been paid", which is what you implied.

Most people in his situation aren't going to want to take a 15 year payment.

[scotchnrocks]

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You said (and I'm in the industry and hear this all the time):
"If your brother could assume your loan that would be better because he would get a break on the upfront interest in a fixed mortgage."

He is basically just assuming a 15 year loan payment (or whatever term is left, I forget the original question). If the rate is lower than what he could get with current financing (including pts), then that could be a good deal...but it has nothing to do with the fact that he's 15 years into a 30 year mortgage and the "bulk of the interest has already been paid", which is what you implied.

Most people in his situation aren't going to want to take a 15 year payment.

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If his brother sells him the house at the cost of the loan, he will have some oddball loan term if he assumes it (say 23 years or whatever). He will get a break in upfront interest in that if he took out a 30 year to refinance it, he would now be paying the higher upfront interest plus new closing costs.

[SossMan]

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You said (and I'm in the industry and hear this all the time):
"If your brother could assume your loan that would be better because he would get a break on the upfront interest in a fixed mortgage."

He is basically just assuming a 15 year loan payment (or whatever term is left, I forget the original question). If the rate is lower than what he could get with current financing (including pts), then that could be a good deal...but it has nothing to do with the fact that he's 15 years into a 30 year mortgage and the "bulk of the interest has already been paid", which is what you implied.

Most people in his situation aren't going to want to take a 15 year payment.

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If his brother sells him the house at the cost of the loan, he will have some oddball loan term if he assumes it (say 23 years or whatever). He will get a break in upfront interest in that if he took out a 30 year to refinance it, he would now be paying the higher upfront interest plus new closing costs.

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No, he would be paying the exact same amount of interest, he would just be reducing his principal faster BECAUSE HIS PAYMENT WOULD BE HIGHER!!

Forget the whole original scenario.

I'm going to buy a house...should i get a 30 year loan or a 23.7 year loan?
Why?

(we can factor the closing costs in later to analyze the difference, but it's not really pertinant to the "upfront interest" question)

[SossMan]

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Hi,

I own a home that is currently on the market, I'm getting married and am looking to move across town.

My brother just a got a job near where I currently live, and will be needing housing in the area. He and his family like my home and would love to buy it. Once my listing contract expires (a month from now), I'd like to get my brother and his family into my house. We want to do this as cheaply as possible, I'm willing to sell at a price just to cover the loan and costs to my brother. Any advice on how to keep the fees as low as possible in this situation? Is it possible to do something like have my brother assume my home loan?

Thanks!

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Also, if he can't assume your loan, you should still be able to get him financing based on the value of the home without him having to come in with a huge downpayment. It's called a "gift of equity" and it's typically allowed through relatives.

In other words, most lenders will typically lend on the lower of the appraised value or the purchase price. If you are giving him the home for just the remaining balance of the loan plus CC, I assume you are giving him a pretty good deal since you won't get any of your equity out. Since he is related to you, you can gift that equity w/out the consequences of him having to get 100% financing.

[scotchnrocks]

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Forget the whole original scenario.

I'm going to buy a house...should i get a 30 year loan or a 23.7 year loan?
Why?


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I'm gonna say 23.7 year loan so that you will pay less in interest over the life of the loan, but for some reason I think you're gonna say pick the 30.

[jaym96822]

I would prefer a 1 year loan. I think I would pay much less interest in that case.

[SossMan]

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Forget the whole original scenario.

I'm going to buy a house...should i get a 30 year loan or a 23.7 year loan?
Why?


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I'm gonna say 23.7 year loan so that you will pay less in interest over the life of the loan, but for some reason I think you're gonna say pick the 30.

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Why get a loan at all? Then you would pay a lot less in interest over the life of the loan.

[scotchnrocks]

ok you win