15year(3.875%) vs. 30year(4.625%)

to effectively arrive at an answer, you should discuss it with your cpa or financial adviser. without your full picture, this is akin to playing russian roulette. it's a big decision. cash flow, pro forma income stmt, bal sheet, tax liabilities (or surpluses), etc... all should be factored in.

Please give: payment difference, % of your income that payment difference represents, security of income, and your age. It's nice to be mortgage free in retirement, but having a 30 year mortgage under 5% may look very good before long.

What is your time horizon for ownership?
How many years are you from retirement?
How does each option fit into your long-term financial goals?
How does each option affect your personal short-term financial situation?
How does the tax deduction of each option impact your personal tax situation?
Have you consulted with an independent financial advisor prior to this purchase?

The pros and cons you list are very generic. It is your individual situation that provides the plusses and minusses as they affect you. How others come out on this, without knowing if their situation is relevant to your own, matters litte.

30yr and pay off principal as you were paying the 15. You will still pay it off in 15 years, but you will have the flexibility of a 30 year lower payment on a monthly basis. This is a nice backup plan should you lose your job, have unexpected expenses, etc.

We are both early 30s... Plan to live there around 6years...

kyle's questions are essential and I'd urge you to flesh out some answers. In general though, I like JuiceMan's approach. Just make sure there's no penalty for prepayment.

If you plan to live there only 6 years, why are you buying? Are you not considering that the roundtrip transaction costs to buy/sell is at least 10% of the purchase/selling price?

Wait until mortgage rates rise to 7 or 8%. Housing prices will fall dramatically and your current 20% downpayment will become a 37% downpayment. Yes, you'll pay more in interest at the beginning but you'll have a lower principal and a higher tax deduction allowing you to pay off the principal faster. Use that Tax deduction every year to make additional payments and a few years down the road refinance at a lower rate.

Strike my last comment: Buy, since you may stay a lifetime even though you cannot see beyond 6 years right now. When inflation is at 10% you may not be able to afford to move, but you will be so happy you bought when you did and borrowed under 5%.

if you are going to live there for 6 years, get a 7-1 ARM. Rate will be equivalent to (or less than) the 15 year and the payments will be similar to the 30 year.

If you decide to buy now, in this environment, you're making a terrible move. You're immobilizing your 20% downpayment in a depreciating purchase, despite what you're thinking, you won't be an owner, the bank will be ( until they get paid in full), so you basically decide to pick your bank as your landlord and paying them more than he would cost you to rent the same premise. That and the fact that when you decide to sell in 6 or 8 years, you may very likely lose equity on your apt sale.

"if you are going to live there for 6 years, get a 7-1 ARM. Rate will be equivalent to (or less than) the 15 year and the payments will be similar to the 30 year. "

yup, this is the right thing to do. Also, if you are disciplined about paying principal like it is a 15 year the rate resets in 7 years on a much lower principal balance, offsetting some of the rate increase risk.

Thank you for all the comment every time. I wish I could give any advice just like you guys.
Have a beautiful day!

A lot boils down to financial philosophy.

I'm generally debt averse. I don't do anything too risky with investments. I make good money now, but may not always want to stay in a high-pressure job. I'm generally a disciplined saver (every retirement account maxed out), but I'm also a chronic renovator and don't entirely trust myself with liquid savings.

For me, a 15-year mortgage is a no brainer. The "all-in" payment is less than 25% of my income. My job/industry is pretty secure, and I have a cushion in the off chance something changes. And, if I want to stay put in this place, I can be "done" and own my apartment free and clear at age 44, which would enable me to pursue self-employment, a lower-paying career, etc. (Or, alternatively, buy a second home somewhere if I decide I do want to stay in a high pressure job.)

In previous homes, I did get 30-year mortgages and pay them like a 15 (or even a 10). But, last year when I went to buy, the gap between a 15-year loan and a 30-year loan was over 0.8%. To me, that's a lot to pay as "insurance" if you're intending to pay the loan as a 15-year. Also, I am sure the $25k I paid off in mortgage principal last year (v. $8k) would somehow have gotten rolled into our upcoming $200k renovation (which started out as a $100k renovation).

I've never regretted not getting an ARM in previous homes, even though I stayed in all of them less than five years. The thought of the clock running out is, psychologically, something I don't want to deal with, even if I can make the math work. I would only ever do an ARM if I were 99% confident I could pay for it all within the fixed rate period.

"30yr and pay off principal as you were paying the 15. You will still pay it off in 15 years, but you will have the flexibility of a 30 year lower payment on a monthly basis. This is a nice backup plan should you lose your job, have unexpected expenses, etc."

My feeling exactly.

if you plan to live there only 6 years, do not buy

sledge told it

and transaction costs are closer to 10% in and another 10% when you sell in 6 years

only reason to buy is if you feel strongly that real estate prices will jump sharply higher during the 6 years

i see that as highly unlikely--liklier is that prices are flat to lower

if price stay roughly the same or only increase slightly

arms allow versatility--on every adjustment date you can adjust term or payment--your choice---last mtg i had was an IO which allowed for adjustment of this sort monthly---whacked the whole thing after a good year after only a few years owning anyway

if you must buy, get a 3/1 arm--if you plan to sell in 6 years the rate will breakeven to the long dated mtgs, even in the unlikly case that the annual cap gets maxed in years 4-6--and you will save if short rates don't increase much--as in a higher rates, steeper curve environment, which i see as likely

but you mustnt buy

So many people advised me not buy the property... Is it better for me to pay the rent every month which doesn't get me anything at the end? We'll downpay around 65% so it's a lot cheaper than the rent... So confused...

"if you must buy, get a 3/1 arm"

Provided your co-op board allows ARMs.

Many don't, for good reason.

Switch-hitter. Winner like you need to buy at all cost. If you put down 100% then you can save yourself the anguish of 15 arm or 30 fixed..... Winners don't ask they answer.

"Is it better for me to pay the rent every month which doesn't get me anything at the end?"

and the baby lamb gets detached from the pack just as the foxes start to circle. Mama lamb can do little, but she cries out in a desperate attempt at distraction while hoping that the foxes don't see her baby, or by some divine miracle, mercy is shown. While a baby may taste sweet at the first couple bites, it is unlikely to satisfy and the fox will continue to hunt. Move on foxes, move on.

"Wait until mortgage rates rise to 7 or 8%."

When is that happening? I've said this before, but I continue to be amazed that some people can turn a pretty straightforward question about mortgage rates to a rent vs buy debate.

Rates could very well go up if inflation starts heating up. If you buy now you get a low rate. If you buy later, prices may still be where they are today, but your rate could be higher.

That said if you get a 30 year fixed rate, you can always choose to do a mortgage acceleration which means you make your mortgage payment on a bi weekly basis. You will pay off your mortgage much faster. The advantage to this is that you can stop the bi weekly payment if you want. In view of this I would go with the 30 year fixed unless you are very certain you can handle the higher payments.

Ellen Silverman
E.S. Funding Co.
Mortgage Broker
Real Estate Broker
www.esfunding.instantlender.com

Prices will stay same when rates rise? Wow, Ellen it must nice to be so financially stupid and yet be employed in finance.

"you can always choose to do a mortgage acceleration which means you make your mortgage payment on a bi weekly basis"

This is a bank sham, there is a charge to make payments on a bi-weekly basis. If you make an extra payment every year (full amount applied to principal) it will have the same impact on your loan term and won't cost you a dime. Either approach takes a 30 year down to ~24 years.

"30yr and pay off principal as you were paying the 15. You will still pay it off in 15 years, but you will have the flexibility of a 30 year lower payment on a monthly basis. This is a nice backup plan should you lose your job, have unexpected expenses, etc."

Can somebody please explain about this?

@switchoco: If your monthly payment is $2500/month on a 30Y mortgage, you mail each month a $5000 check

@sledgehammer: Thank you for the reply. Is there any penalty for doing that? Is there any drawback?

The bank has to recalculate your principal every time you make a larger-than-needed payment. With less money compounding for less time, your mortgage will be paid completely in about 15 years. If you get to a point where paying $5,000 a month is a hardship, you just pay the $2,500 until you're more on your feet. Or somewhere in between, and have the mortgage paid off somewhere between 15 and 30 years.

But the correct answer is that you shouldn't be buying. "Throwing money away on rent" and "paying the landlord" are marketing concepts introduced by the real estate industry. Buying a depreciating asset at a higher cost than renting, paying basically only interest for the first several years (which is how mortgages work -- find an online mortgage amortization schedule calculator that shows each month's principal and interest if you don't know that), and losing flexibility serve the real estate and mortgage industries, but not you.

There's a surcharge if you make an extra payment -- like the idiotic "pay every two weeks instead of monthly" game ... but not if you make your monthly payment larger each time.

I believe that for owner-occupied residential mortgages, you are statutorily protected from prepayment penalties and fees in NYS.

alanhart, why don't you tell us how you really feel...the OP is not asking for your opinion about whether or not they should be buying. Was that part of the question? Take your rant to the rent/buy posts where it belongs...

NYC10007, if someone asks you whether to get the Beef Burgundy or the Beef Wellington, and you know that one preparation is better than the other but the beef has been rotting for two weeks and is mostly just maggots at this point, would you just stick to the two choices?

And perhaps it's a slight misstatement, but switchoco appears to be putting 65% down for this purchase. "So it's a lot cheaper than the rent"!!! No advice there?

actually, 10007, the switchoco specifically wrote: "So many people advised me not buy the property... Is it better for me to pay the rent every month which doesn't get me anything at the end?"

so yes, that became part of the question.

does alanhart really need an unemployed unskilled lady to help him state or defend his position?

@alanhart: Can you please explain in detail? I'd be happy to get all the advice!

Sometimes the apartment you love cannot be rented and has to be bought. Everything has a price. That you buy does not mean you are doing so to save money. A house is a place to live and not necessarily a business product or asset. There are several things we spend money on that are not necessarily value like buying a 100,000 USD car when a 40,000 would do the same. I would say if you like the house as your home buy it - true it costs more than renting, but there are some things in life, like human satisfaction and happiness, you cannot cost. As a side there is in general a big difference (in quality) between rental apartments and owned apartments.