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0 pointsthrowaheyy3y ago0 comments

And that is exactly why 15 year rates are lower than 30 year rates. When 30 year rates got to 2.5%, 15 year rates went down to 1.8%.

There’s no free lunch.

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nradov3y ago· 2 in thread

Flexibility is tremendously valuable. In absolute terms a 0.7% difference is really small. Individual circumstances varied, but for average middle-class consumers the smart move was to take the 30 year mortgage. Then they could make extra principal payments, or if money gets tight one month then just pay the minimum without worrying about defaulting.

Sure in an ideal world we would all have 6 months of living expenses in an emergency fund plus multiple independent income streams so that getting laid off would be only a minor inconvenience. But the reality is that most homeowners have few other assets and just one job, so they have to plan within those limitations.

AlbertCory3y ago

You also are missing the point.

At any given instant, your monthly payment for a 15-year will be higher than for a 30-year. You're right that if you can't afford it, then you shouldn't do it.

If you can possibly afford the payment for a 15-year: in 15 years you'll have a monthly payment of zero, because you'll have paid it off. After a few years, you'll have started paying off the principal.

And, of course, if rates go up (as they have), then in a few years the monthly payment for the 30-year will be approaching what you would have paid a couple years ago for a 15.

nradov3y ago

You also are missing the point. Potentially having the mortgage paid off in 15 years is meaningless if you have a cash flow problem in 5 years and default. That is the greater concern for most consumers.

Rates going up in the future is irrelevant if you have a fixed rate mortgage, so I don't know what point you're trying to make there.

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