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Profile picture for diamondgirlz

why do the lenders steer you away from a 20 year loan?

considering refinancing a 30 year fixed rate (6.75) to lower house payments in anticipation of retirement.  Have 9 years down on initial 30 years, and about $88,000 left on current loan.  Not sure how much longer I'll stay in this home, it is too big for us now--maybe 2 years for sure.
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January 01 2009 - Great Falls
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Way to go, Ted.  You dug up a thread that is so old that no one cares about.  That's going to have people rise up and take notice of you!
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August 18 2009
Thanks Clay. Thanks Gregorio. ... I usually look at the date of the post. If it's over 3 days I usually don't respond. Didn't catch this one. .... Happy funding, Rudi
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August 18 2009
I have a better question, why would Ted use his first Zillow post to argue with NTETS 8 months later?
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August 18 2009
Rudi, I am referring to Ted's comment that sometimes a 15 Yr payment is lower than a 20 Yr payment. I am saying in order to get a smaller payment with a 15 year loan in this case, you would need a rate of 2.25% and I would like to know from him in what situation he comes up with a lower payment on a 15 yr amortization than a 20 year amortization. Just trying to learn something here. I am sure your figures are dead on!
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August 18 2009
Clay,

Actual numbers. Rebate is not credited into payment.

30F - 5.000 <0.375> = 472.20
20F - 4.875 <0.179> = 574.70
15F - 4.375 <0.375> = 667.59
5/1 - 4.000 <1.018> = 420.13

I didn't know if you were referring to Ted or me. No batteries. Web based amorization calculator.  .... Happy funding, Rudi
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August 18 2009
Using Rudi's figures, a 15 Yr loan with a 2.25% rate would still have a higher payment ( $576.47 ) than the 20 yr at $574.70. Maybe the batteries on the HP are low.  
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August 18 2009
can you list just 1 example of where a 15 Yr loan has a lower payment than a 20 Yr loan? 

The answer to that is "no"...

And, I agree with most here.  The rate between a 20 year and a 30 year is usually little and sometimes no different.  I usually recommend the 15 year or 30 year versus a 20 year term.
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August 18 2009
I don't think anyone is steering you in one way or the other. If you only plan on staying in the home for about two years, unless you are going to keep it as a rental, a long term fixed rate may not make sense.

8/18 rates on $88K:

30F @ 5.000% = $472.40
20F @ 4.875% = $574.70
15F @ 4.375% = $667.59
5/1 @ 4.000%  = $420.13

You be the judge what's best for you. .... Best wishes, Rudi
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August 18 2009

The difference between the 15 and 20 are usually very little  and sometimes the 15 yr mortgage payment can be less than the 20 yr.
Ted, can you list just 1 example of where a 15 Yr loan has a lower payment than a 20 Yr loan? 
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August 18 2009
NTET's your are wrong. The reason is , 20 and 30 year rates are usually the same. Why take a 20 year term and get a 30 year rate? I advise my clients on 15 yr vs 30. The difference between the 15 and 20 are usually very little  and sometimes the 15 yr mortgage payment can be less than the 20 yr.

The question to ask is, why does the market place keep the 20 yr and 30 yr rates the same. I think the 20 yr rate should be cheaper than the 30 yr rate, but it rarely is.
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August 18 2009

You need to analyze the pros and cons of a refinance. Assuming you would be able to lower your interest rate through a refinance, the cost of refinancing your loan may exceed the interest rate savings you would gain - especially if you only kept the home for a few years. The calculation is something you can ask your lender to assist you with.

The benefits of the length of a mortgage loan differs with each individual. If your goal is to own your home free and clear going into retirement and you are financing the home you intend to live in through those years, than taking out a 10 -15 -20 year loan (15 and 30 year loans are the most common configurations) provides an outstanding opportunity to live debt free. With a shorter term loan, you are paying your principal loan off much more quickly. Another benefit is that Interest rates are also usually lower by 1/8 - 1/4 % on 10 or 15 year loans than they are on 30 year loans. The lower interest rates help to offset the higher monthly payment created by a short term loan payoff.

Some individuals might prefer longer payoffs to allow for smaller monthly payments. High income earners may prefer to have the taxable benefits of the interest rate deduction for longer years than a short term loan provides.

Again, your loan consultant should be the one to help you decide what's best for your personal needs and preferences. If they are not, you might choose to interview other loan consultants.

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February 18 2009
Profile picture for the hog
Normally, the 20 year and the 30 year rate are the same. Financial, it would be better to take the 30 for the lower payment, just in case something happens in the future. You can always pay more. If you want a lower rate, you really need to look at a 15 yr mortgage, but at this time, there is not much difference in a 15 yr vs 30 year too. 
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February 14 2009
Lenders are probably steering you away from a 20 year mortgage because, believe it or not, in most cases it's slightly MORE expensive than a 30 year fixed.

Your best bet: ask! Ask what the rate and fees are for both 20 and for 30 year fixed rate mortgages. If the 30 year fixed is better priced, take it! You can always pay back at a 20 year rate. Just ask your lender what the payment would be. Then, when you make your mortgage payments, include the additional sum and indicate that it is to be applied to your principal balance.
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January 04 2009
Profile picture for just lou
When I refinanced, I was able to get a 20 year loan. It was only .125% less than the 30 year, but it is out there though.
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January 01 2009
While NTETS's answer sounds like a good one, it's not the actual reason ... at least not for any ethical lender. Currently there is little difference between pricing for a 20 year and a 30 year so it makes sound financial sense to take the longer term and amortize it on your own over whatever time frame you like. With no pre-payment penalty, you can pay as fast as you like but have the built in protection of a lower payment should a situation arise. It makes no sense to take a shorter term if there is no benefit of a lower rate.
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January 01 2009
Profile picture for sunnyview
Oooh, good answer NT. I didn't know that, but I always suspected something since I also encountered resistance for a 20 year loan term. It always comes down to money in the end.
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January 01 2009
Profile picture for Mr Caveat
two reasons, first 20years usually have a lower rate vs 30 years
second the std accounting practices allow banks to book loan value at amoritized principal + interest so it looks better to their shareholders

here is the math (100k loans)

20 year, 4.75
  You pay 646/month for 240 months
  The Bank recieves a total of 155k (100k+interest)


30 year 5.00
    you pay 536/month for 360 months
    the bank recieves 193,250 total or almost double the interest!
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January 01 2009
 
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