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birb_cromble  3mo ago (text post)   1115 thread views

Weekly Finance Thread - 2027-07-04

A weekly thread to discuss financial matters - from personal all the way up to global.

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Given relatively high mortgage interest rates over the last several years, my partner and I have been been delaying purchasing a shared home and have spent the time building up a stronger financial position instead.

Watching the behavior of the 10 year Treasury, it looks like we're going to be stuck between six and seven percent for the foreseeable future, so I should probably start planning. Are there any good rules of thumb for choosing between a 15 and 30 year mortgage these days? I hate debt, so I gravitate to the 15 in all cases, but I also know that's a preference, and not based on anything rational.

I agree with others that the 15 year terms are not favorable enough to incentivize it. Something I would consider if I were you is an ARM, which will offer lower rates than fixed. Interest rates are already high, so there is less to lose with an ARM and a greater chance for a refinance to become worth if they descend.

I am somewhat nervous about the 10 year fixed and thereafter ARM I took in 2021, but I have a few more years to still hope for better policy (from the political branches; I think the Fed is currently pretty darn close to correct).

Every time I hear somebody recommend an ARM, I reflexively think of the 2022 rate spike, and the Volcker shock. How did you get over that? Interest rate risk is scary.

I'm fully exposed to the 2022 rate shock (which is to say I took an ARM at 2021 rates), but there are lots of ARM products that lock for 7-10 years, so I have about 5 years left. My presumption as a buyer is that I will either be able to refi at attractive rates or make enough career progress to blast the principal down if it comes to that. 10 years is a long time to not get a downward rate cycle, though yes I may end up burned.

But as a current buyer, the rate shock is already like 90% in place. I seriously doubt anyone at all doing a 30 year today will not refinance long before its time is up... in general it is worth it to refinance when rates move 1.5%.

I also did the 30-year + aggressive payoff schedule (trending to 15 years and maybe less if family members die and I receive expected inheritance).

Keep in mind you do get to deduct mortgage interest paid, so if you are able to itemize deductions (should be more likely with SALT cap increasing to 40k) it works out to something more like 3-4% effective interest paid. Not bad if you want the flexibility and lower mandatory payments.

I share your hatred of debt, but I ended up going with a 30 year mortgage anyway, for the reasons that Amadan laid out below. I calculated that getting a 30 year mortgage but paying it off as if it were a 15 year mortgage would see the house paid off in 16 years. That extra year of payments is not an insignificant amount of money, but I figured the flexibility was worth it in case I should lose my job, get hit by a bus, etc., and find myself short on cash at some point in the next 15 years.

I ended up paying the mortgage down pretty aggressively in the first two years, leaving me with only 15 years of payments to go by last summer. At the time, I debated refinancing to a 15 year mortgage, and I kind of regret not doing it since mortgage rates went back up again. But if I keep paying it off at the same rate, I should be mortgage-free in less than five years anyway, so I’m not sure it matters.

Back when interest rates were 2%-3%, a 30-year mortgage was practically free money, but today, if you can afford the house you want with a 15-year mortgage, it will save you a large amount in total payouts. Most people take 30-year mortgages so they can afford more house.

Some people will say take the 30-year mortgage and make double payments when you can afford them, which saves you almost as much but allows flexibility should your finances become strained. That works, but requires financial discipline, and if you can comfortably afford the 15-year rate, it's still a better deal.

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