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20 or 30 year fixed?

I am tempted to refi at 20 year fixed, but am a bit nervous I would be stuck with a higher mortgage payment if I were to lose my job.  So if I get a 30 year fixed and just make extra principle payments can I still come close to paying off in 20 years if I make similar payments as I would have had with 20 year loan?  I realize I would get a slightly better rate with the 20 year fixed loan. 
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October 14 2010 - Fort Collins
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simple choice...go with 30 yr 
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October 14 2010
If you go with the 30 year make sure it's a loan that you can make additional payments on and pay off early without penalty.

I have a client that got a 30 year loan but is planning on making at least one extra payment a year, if not more - without penalty.
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October 14 2010

If the 20 year rate is .125 lower than the 30, then using a 30 Yr loan and prepaying with a 20 year payment will payoff in 20 years plus aprx 4 more payments. If you have any concerns about your job then take the 30 year and prepay. Your post says Ft. Collins so if that is where you are located, then email or call Nic who is in the same city:

http://www.zillow.com/profile/ColoradoLender/



   

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October 15 2010
Sounds like a 30 year would be the best option. I would recomend getting an amortization schedule showing how extra payments can decrease our principle balance. Let me know if you would like me to provide one for you.
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October 15 2010
I disagree with the 30-yr idea. If you can save 1%-2% by taking advantage of the lower rates, and by reducing your term, the money you could save in the long term can be momumental. Have someone run the amortization tables for you so you can see the difference in your payment each way. I'm finding for many of my clients that their payment is making almost no change when they save more than a point from their 30-yr mortgage to a new low-rate 15 year. If you are concerned about whether you can make the payment because of a job loss, that same concern is there right now. I would not make that a reason for not making an ambitious plan to pay down, and pay off your mortgage. Many of my clients are saving more than $100,000 in interest by switching from a 30-yr mortgage to a 15-yr loan. If you lose your job now, will you still be able to make your payment? So what changes if you have a 15-yr loan? The payment might be a little bit higher, but the consequence is the same. If you have built some reserves, you will be able to handle either payment. You have a very good hunch, you should go with it, and at least find out the possibilities.

Also,

I would be wary of recommendations from an out-of-state lender to use his buddy in Colorado. Very questionable behavior. Call someone recommended by a family member, or do some shopping around. You deserve to have someone focused on your goals, not someone building a "lender-friends" network.

Good luck!
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October 15 2010
The best answer to this question is found throught your mortgage broker and most realtors have at least one or two that they recommend highly.
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October 15 2010
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Thank you all!  This certainly gives me plenty to chew on before I make that decision.


fcr
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October 20 2010
welcome !
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October 20 2010
Go with 30 years this way you have the option to make the payment of the 20 year loan but are not OBLIGATED.
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October 20 2010
Also, remember to factor in your effective percentage rate, or your interest cost after your tax deduction.  It is a simple caluclation.  Take the face interest rate of the new mortgage, multiply it by your marginal tax bracket, federal and state, and then subtract that number from the face interest rate, and you will have your effective percentage rate:  i.e. 4.000% interest rate x's 28% tax bracket = 1.120%.  4.000% - 1.120% = 2.880%.  So, overpaying your new 30 year fixed loan to shorten the term will earn you a rate of return of 2.880% since you are saving money at that rate.  I would recomend refinancing into a new 30 year, and taking the new monthly savings/cash flow and overpay any non-preferred debt first (i.e. credit cards, car loans, etc.) as those debts will not have a tax benefit attached, and your rate of return on that money will be higher since the interest rates should be higher than 2.880%.  If there is no other debt then I would reccomend consulting with your, or a financial planner to determine if he/she could get you a higher rate of return on your money in a retirement or other asset account, before accelerating your mortgage debt.  Also, there are other products/strategies that are much more effiecient in accelerating mortgage debt and saving much more interest than even a 20 year or 15 year fixed mortgage loan for the right situation.
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October 20 2010
Because of your present situation, you should stick with a 30 year loan.  By making 1 extra payment per year, you can turn your 30 year loan into a 22 year loan saving $1000's in interest expense. 
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October 20 2010
The difference in rate between the two programs is so small that it makes more sense to go with the 30 year to give yourself more options at the end of each month.  If you can stick the 20 year amortization schedule you will have the loan paid off in 20 years, but if you have unexpected expenses some months it might be better to make the lower 30 year payment.
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October 21 2010

Especially because of the economy, and the rates are low. It makes since to stick with a 30 yr fixed rate and make additional principle payments and you will end up with the same benefit, that you would if you went with a 20 yr loan.

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October 21 2010
 
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