Magazine article USA TODAY

30-Year Mortgages Are Good Investments

Magazine article USA TODAY

30-Year Mortgages Are Good Investments

Article excerpt

In recent years, the 15-year mortgage has grown increasingly popular, especially among higher-income homeowners. The interest rate for a 15-year mortgage is lower than for a 30-year mortgage, and the loan is paid off in half the time. This saves the homeowner thousands of dollars in interest over the life of the mortgage. Yet, many of these homeowners would be better off taking the 30-year mortgage, according to the Institute of Certified Financial Planners, Denver, Colo.

What the 15-year mortgage scenario doesn't take into account is that the homeowner often can invest the money saved from the lower monthly payments of the 30-year mortgage and come out ahead in the long run. Assume a mortgage of $150,000 and a homebuyer in the combined Federal and state tax bracket of 33%. In one scenario, the buyer takes a 15-year mortgage with an interest rate of 7.5%. In the other scenario, the buyer takes a 30-year mortgage at eight percent.

Under the 15-year mortgage scenario, the homeowner saves nothing extra until the mortgage is paid off. At that point, the entire monthly mortgage payment can be invested in a tax-deferred retirement plan earning 10% a year. Under the 30-year mortgage scenario, the buyer immediately begins investing in the retirement plan the monthly difference between the higher payments of the 15-year mortgage and the lower payments of the 30-year mortgage. …

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