advice for first time home buyer? - Page 4

Thremp · #31 10-09-2007, 06:34 PM

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am I missing something? Did you guys say a 30y loan will cost you as much as a 15y loan?

I feel i may have misread something, or myabe I just dont understand financing as well as you guys.

I was always led to believe that you will save a ton if you are not paying interest for those extra 15 years. If you guys could clear this up I would be greatful.

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You wouldn't pay off a 30 year loan in 30y. You pay it off in 15, but you gain extra flexibility through having the choice if a medical emergency comes along, wanting to take a vacay, someone loses a job etc. Its mostly a utility question. If you can significantly increase happiness by moving to a new price point etc etc.

Rates are higher on a 30y which is why you'd have to weigh this out. If they were equal, everyone in every circumstance should just get a 30y.

john voight · #32 10-09-2007, 06:46 PM

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am I missing something? Did you guys say a 30y loan will cost you as much as a 15y loan?

I feel i may have misread something, or myabe I just dont understand financing as well as you guys.

I was always led to believe that you will save a ton if you are not paying interest for those extra 15 years. If you guys could clear this up I would be greatful.

[/ QUOTE ]

You wouldn't pay off a 30 year loan in 30y. You pay it off in 15, but you gain extra flexibility through having the choice if a medical emergency comes along, wanting to take a vacay, someone loses a job etc. Its mostly a utility question. If you can significantly increase happiness by moving to a new price point etc etc.

Rates are higher on a 30y which is why you'd have to weigh this out. If they were equal, everyone in every circumstance should just get a 30y.

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okey so you take the 30y loan w/ plan to refinance, but in case something drastic happens in your life you have more options than you would w/ the 15y loan? This makes sense.

Thremp · #33 10-09-2007, 06:52 PM

john,

Did I say anything about refinancing? You just make the difference up in payments on principle. So you'd pay the same each year. I have not run numbers on the difference with a 6.1 v a 5.8 or something of that sort, or what value you'd place on that and the additional flexibility. But its something that deserves consideration before its written off the board.

prohornblower · #34 10-09-2007, 07:45 PM

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I have not run numbers on the difference with a 6.1 v a 5.8 or something of that sort, or what value you'd place on that and the additional flexibility.

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I did this literally a handful of posts up.

Anyway John, I thought you were levelling so I didn't respond. There most definitely is value in being able to decide which months you can and can not pay more towards your mortgage.

It is my opinion, however, that if you can't afford $1160 a month on your shelter, then you probably can't afford $850 either. The $300 when you are pulling in 6K a month should never be the hinge on whether or not you can "make it". If it is, you are spending too much on other crap like cars, etc.

It is also my opinion that many people (esp. Americans) would get the 30 thinking the exact same thing "I'll get the 30 but pay it off in 15-20". LOL. I'm not suggesting this is you, Thremp. Or anyone else in here, but for most people they might do this for about 4 months then go "wow we keep having a few hundo extra every month. We're balla!" and lose sight of their original goal.

Thremp · #35 10-09-2007, 08:00 PM

Prohorn,

I didn't see it. Thank you.

My point was to put the extra $300 each month into your mortgage and only use it when necessary if it fits your utility curve.

But yes, I do agree with what you're saying. Most Americans suck [img]/images/graemlins/frown.gif[/img] Then again I get buyer's remorse for spending like <20% of my gross monthly income each month instead of only spending like <10% so I'm just a degen in that regard.

john voight · #36 10-09-2007, 08:29 PM

Guys I wasnt levelling. This is porlly only fourm I keep leveling down to a minimum (maybe uNL as well).

I just wasnt aware that you can take out a loan for 30y that say equals to paying $850 a month, and pay more (say whatever a 15y loan payment would be) every month w/o being penalized.

At this point this is what I am understanding.

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Anyway John, I thought you were levelling so I didn't respond. There most definitely is value in being able to decide which months you can and can not pay more towards your mortgage.

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so you are saying: a 30y loan can essentially be a 15y loan, the only difference being the interest rate?

Thanks for being patient w/ me guys.

Thremp · #37 10-09-2007, 09:48 PM

John,

Yes. There might be a prepayment penalty but thats only at the extreme end.

For my situation (mostly due to my risk preferences), I'll attempt to get a 15 year loan for my first home. I will then attempt to pay this off in <3 years. The reason I want a 15 year loan is that if I lose my current form of income and result to 9-5ing it... I will then be only able to make that payment. I pay a small amount extra, but give myself a huge insurance in being 100% sure I'll be able to pay off the loan.

For someone with a slightly variable income (sales for example), they might be inclined to go for a small amount of flexibility in their loan. Its just something that needs to be considered.

John, aren't you British as well? I'm uncertain of how loans work there.

prohornblower · #38 10-09-2007, 11:28 PM

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so you are saying: a 30y loan can essentially be a 15y loan, the only difference being the interest rate?

Thanks for being patient w/ me guys.

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Sure, why not? You can pay any loan down faster. Why couldn't you? Have you ever declined someone who owed you money? lol. As long as there was no pre-payment penalty. But I think pre-payment penalties are for sub prime loan types. If you have decent credit and decent income there's no reason you shouldn't be able to get a mortgage with no prepayment penalty. I just paid my car off the other day 5 months early and verified this, as I had no idea when I got the loan about prepayment penalties and stuff.

Thremp brings up a good point about variable income. My father and brother are salesmen and it seems like it's a lot harder for them to get a grip on their finances than myself who has a typical 9-5. In their case it may be worth the extra peace of mind to go 30, and to give up some EV on their loan.

jaydub · #39 10-09-2007, 11:37 PM

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so you are saying: a 30y loan can essentially be a 15y loan, the only difference being the interest rate?

Thanks for being patient w/ me guys.

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But I think pre-payment penalties are for sub prime loan types.

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I would use the word exotic in place of sub prime. Prepayment penalties tend to be attached to loans like option ARMs with teaser rates where a savvy buyer could float for a little while at a sub market rate. But I would still be careful as such penalty clauses often resulted in broker bonuses and thus tend to sneak in.

OP,

This:

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I make 42k/yr. I can expect 4-8% raises every year with my current position/job. However, 100k/yr is a extreamly attainable by the time I'm 30 as long as I switch jobs/positions a couple times.

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seems quite optimistic and non specific.

J

chopstick · #40 10-10-2007, 12:10 AM

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I think the most common reasons people buy a home is because they have kids.

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I think the most common reasons people buy a home is because other people do it.

I think the most common justifications people use to support the buy a home decision is because [insert terrible armchair economic reasoning].

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Not to say there can't be good reasons, but the reasoning process itself is almost always done in such a manner as to lend absolutely no actual merit to the conclusion. More often than not it results in an exercise of justifying a decision that has already been made, and is now in need of support.