30-year zero point loan

[Henry C.K. Liu]

If you treat your mortgage as "investment", which is not always the
wisest option, then a 30-year fixed mortgage is not autnomatically the
best deal.  A 30-year mortgage will entail a total payment over the life
of the mortgage double that of a 15-year. But usually interrest rate is
higher than inflation rate at the time of closing, so the borrower is
really risking on future inflation rates on a long term fixed rate.
Many borrowers view long term fixed rates as insurance rather than a
quest for maximization of gain.
If you can swing the cash flow, which many buyers cannot because they
like to buy the most expensive house they can afford, then a shorter
mortgage is a better "investment".  Even if you cannot afford a high
payment at the beginning, an accelerating payment schedule tied to your
anticiapted earning rise will still save you money over the life of your
mortgage.
As we know, the system is always geared to favor the rich, so a cash
deal lets you capture 100% of the resl estate appreciation over time
less inflation.
In America, interest on one's residence is tax deductable, up to a
principal sum of $1 million plus $100K for renvoation.  So you have to
calculate your income tax rate and compare it to your mortgage rate and
then calculate your total payment because you can make an intelligent
decision on which is the best "investment".
In general, credit is an advantage only if you can buy a cash machine
with the funds that can more than carry the payments, and you pocket the
difference.  On a fixed income, like most Americans have, credit is
rather meaningless even with a tax deduction on interest.

Henry C.K. Liu

Greg Nowell wrote:


> Someone asked me to clarify what I meant by this.  I
> follow mortgage rates in addition to other financial
> indices because
>
> 1) I am directly concerned, and my most successful
> single investment to date has been refinnacing my house
> at 6.625%, which is putting more money in my pocket
> than almost anything else I could have done.
>
> 2) There are many different kinds of mortgages:
> adjustables, mortages with points paid in advance,
> etc.  The "average mortgage figure" issued by the US
> govt and other entities averages loans paid with points
> with loans paid with no points or even negative points
> (borrower gets some cash back secured by the house: go
> ahead and buy that washer-dryer, is what it's saying).
> I follow the 30-year, fixed rate, zero points down
> mortgage rate because it continues to be the most
> popular of the mortgage options and is a good,
> consistent indicator of what is happening with housing
> and by implication all production tied to housing.  It
> is also a good indicator of what's going on with credit
> lines secured by housing equity, which are an important
> component of consumer demand.
>
> But you can't just say "mortgage rates are X."  There
> are too many different flavors.  So I focus on the
> 30-year fixed rate zero point much like the bond
> traders focus on the 30 year Treasury.
>
> -gn.
>
> --
> Gregory P. Nowell
> Associate Professor
> Department of Political Science, Milne 100
> State University of New York
> 135 Western Ave.
> Albany, New York 12222
>
> Fax 518-442-5298