Life insurance customers have to consider what will happen after they die. But what about mortgage shoppers?
MoneyTips member Lynn broke some new ground when she asked our community whether, as a 50-year-old, she should avoid obtaining a 30-year mortgage because she may not live another 30 years. Should she sign a mortgage that might outlive her? Several professionals in our community offered their perspective.
Mortgage broker Ted Rood explained that, "Most borrowers who take out 30-year loans do not take 30 years to pay them off. They either move, or refinance the loan as rates improve. You can also prepay additional principal, as much as you desire, whenever you want on a mortgage." Rood, who works in Maryland Heights, Missouri, offered Lynn some comforting words: "I wouldn't let the 30-year term scare you; it's just a means of calculating the payment you qualify at, not a requirement to pay for 30 years." Rood speaks from experience. "I recently did a 30-year loan for an 87-year old borrower. No one involved thought he'd live to be 117 years old!"
Insurance agent Tim Hensley, from Gilbert, Arizona, explains why a 30-year term is preferable to a shorter mortgage: "If you choose a 15-year loan, which has a higher monthly payment, and you run into unexpected financial difficulties, you will need to continue making that payment even if you cannot afford it. Having a 30-year loan payment, you can pay it off in 15 years if you like, except if you have some financial difficulty, you can stop making the higher payment and not lose your home, thus having more flexibility and control of your money."
Mortgage banker Dan Spiegler from Boulder, Colorado, refers to an even shorter time frame: "…consider that on average a home is held for six years. I think the average hold for a 30-year mortgage is about seven years. Financing is about picking the best tool to fit your needs, not the bank's. Believe me, the bank will quickly tell you if you don't fit their needs."
Spiegler offers another view, imagining how a mortgage would fit in with Lynn's plans for her ideal retirement: "You're only 50. Maybe the loan will be paid off by the time you retire or maybe you're anticipating having so much equity that you can convert to a reverse mortgage. Rather than pay-until-I'm-dead, maybe you can approach the question from the perspective of what you aim for retirement to look like."
Paul Carson, a loan officer in Conshohocken, Pennsylvania, agrees that your mortgage terms should be based on your personal needs and that everyone's goals differ: "I have had older clients still take out a 30-year term to minimize their payment. And I have had young clients take out a 15-year loan on their first home to pay it off in half the time of their friends."
No one knows what the future holds, so we should plan ahead. Dave Bradley, a Financial Advisor in North Charleston, South Carolina, sums it up well: "I have no idea if I will be alive in 30 years either but I do know that I have lived responsibly and my family is taken care of financially to the best of my ability. Ask me in 30 years and we can compare stories."
This article was provided by our partners at MoneyTips.