[quote=spdrun]If you can repay early without penalty, what’s the difference? It’s actually nice to have the flexibility of a longer time-frame/lower payment even if you don’t use it.
Since the Bernanke Bucks are available, may as well use ’em.[/quote]
Actually, there’s a lot of people who feel that way, especially with Bernanke at the printing presses..
The thought process goes like this…
1)Today’s dollars is worth a lot more than tomorrow. So better off to push out as much debt as you possibly can
2)With a lower monthly payment, you will qualify for more loans on your second or third home…That’s actually a pretty valid point
I think this part is a kinda of a personal comfort…Some people feel comfortable having 30 year mortgage over their head. Me, if I were to refinance into a 30, I wouldn’t be done until I was in my sixties.. I plan on retiring a lot earlier than that (I was shooting for 40, but healthwise, insurance is a problem…yes even with obamacare..but seperae issue)…
The other issue I think is if you’re a perpetual refinancier, the 30 year for me is kinda discomforting.. because the principal reduction is really really low. It’s not really a big deal in the long run, but I guess mentally I don’t like to feel I’ve just given the bank so much money for nothing…
There’s the other thought process is that well, you can take out a 30 year loan and make 15 year payments, and if some emergency comes up, revert back to the 30 year payment. Yes, this is probably a good strategy too…..Well, historically, the difference between 15 and 30 year loan rates was big enough and the thought process is that if you are already going to make 15 year payments, just get a 15 year loan anyway…But these days, rates are so much floored both the 15 and 30, it’s really not *that* much different anyway…
Then there’s the other thought process that if you plan on making your primary your rental, you want to get a 30 year loan so you can cash flow as much as you can… Good point too. But here’s the deal on that one… You only need to really worry about that IF you think rates are gonna jump really quickly…If you think rates are gonna stay low for some time, you can take your candy ass time on a 15 year up until maybe a few months when you *think* you might move out (but not really) into a 30 year. That way, you’ve taken advantage of the principal paydown all along the way, and your principal has shrunken significantly, that you can then take out the 30, and make ridiculous monthly.
However, the other thought process is that some of these houses you shouldn’t have as rentals anyway because you tie up too much equity for it to cash flow with a loan..But the other thought process is that interest rate is so low anyway, it doesn’t matter. But the counter to that argument is that interest rates are low (for now)….But most likely not in the future…
So in other words that’s my long ass way to say yes, I’ve sat through all the scenarios and thinkng about all the ands ifs and buts…And that I have become utterly paralyzed in what is the best decision…Ultimately I think the best decision is to settle on what you feel comfortable with..
Ultimately, my relative get’s the cake for being a pure genius. She got a 1 year IO loan 1 million loan on with a 1.5% rate…For the past 5-6 years….They have on hand, and stick it in an safe investment that produces 4-5% tax deferred .. And since the loan is IO, everything is deductible on schedule A. Lol….
