Including a Decreased Loan Life in the Mortgage Decision

Lesseig, Vance P.; Fulmer Jr., John G.
December 2003
Journal of Financial Planning;Dec2003, Vol. 16 Issue 12, p66
Academic Journal
The article discusses the appropriate maturity of the mortgage and the number of points to pay to reduce the mortgage interest rate. The mortgage-maturity decision must be part of an overall financial plan that considers long-term investing options, insurance needs, age, tax planning, risk and similar matters. A financial advisor can demonstrate to a client that the total money spent should not be a consideration in the maturity decision. It is easy to show a client that if the 30-year mortgage is selected and the difference in payments is invested in a fund earning the same rate as the mortgage, the fund will exactly offset the higher dollar interest cost. For the 30-year mortgage to be the superior choice, the investment fund must earn a rate of return greater than the interest rate on the loan. By choosing the 30-year loan and investing the difference in payments, the client is essentially borrowing funds at the mortgage rate to invest in the fund.


Related Articles

  • MONEY. Tuohy, Donna // Gay Community News;Feb2007, Issue 206, p35 

    The article discusses how to deal with financial problems. It has been suggested that people should focus on clearing their debts first. Money is cheap at present, though interest rates have risen, they are still at a 50-year low. Those who have managed to make some property through mortgage...

  • Using Mortgage Credit to Achieve Client Objectives. Storms, Phillip // Journal of Financial Planning;Oct96, Vol. 9 Issue 5, p77 

    Debt is a four-letter word that many financial planners would prefer their clients avoid. In the real world, not only is it impossible, it is undesirable for most of our clients to totally eliminate debt. Mortgage debt can be useful, not only to help our clients acquire shelter, but to...

  • 12 money mistakes that could cost you $1,000,000.  // Consumer Reports;Feb2008, Vol. 73 Issue 2, p16 

    The article presents 12 common financial mistakes that people make and explains ways to avoid making them. Investing too conservatively during retirement and retiring too early may be costly. Divorce litigation, underinsured real property, and getting trapped in a high mortgage rate may also...

  • NO PERFECT ANSWER. Ross, Derek // Accountancy;Aug2002, Vol. 130 Issue 1308, p103 

    One of the most difficult questions facing financial managers is to determine the most appropriate mixture of fixed to floating rate debt. Broadly, there is a two-stage methodology in dealing with interest rate exposure. The first stage is to determine an appropriate level of gearing and the...

  • VALUABLE LESSONS. Hadaway, Laverne // Employee Benefits;Nov2008, p41 

    The article reports that the need to educate employees on financial matters has been underlined by the credit crisis but the question is how employers should go about it. It is pointed out that workers need to be more knowledgeable on how to manage their finances such as mortgage debts. Some...

  • THE PERSONAL TOUCH -- 2. Greenidge, Ian; Foreman, Tony // Accountancy;Jan1989, Vol. 103 Issue 1145, p98 

    This article offers advice on personal financial planning in redeeming a qualifying mortgage. Assuming the following information has been provided. First, the mortgage is a repayment mortgage with one of the smaller building societies. Second, it is due to be paid off in the year 2008. Third,...

  • SO YOUR MONEY TYPE IS …. Wilson, Wendy L. // Essence (Time Inc.); 

    The article offers information on several types of personal finance planner. A classic spender likes to look good and impress others, thus spends on impulse. The second type likes to pay his bills on time and do not care too much about impressing others if he cannot afford it. The third type is...

  • Do Financial Advisors Earn Their Keep?  // Morningstar Practical Finance;Sep2006, Vol. 2 Issue 9, Special section p3 

    The article criticizes the results of a study conducted by researchers at Harvard University and the University of Oregon which aims to show the value of financial advisors. The research examined whether paying the advisor a fee helped clients find funds that they could not find on their own....

  • Prepare Your Spouse for Financial Independence.  // Morningstar Practical Finance;Oct2006, Vol. 2 Issue 10, p4 

    The article focuses on the preparation to be taken by a spouse in managing his or her financial affairs. Information on how to find everything financial that include financial accounts and important papers including annuities, appraisals, birth certificates, and insurance policies, may be...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics