TITLE

Including a Decreased Loan Life in the Mortgage Decision

AUTHOR(S)
Lesseig, Vance P.; Fulmer Jr., John G.
PUB. DATE
December 2003
SOURCE
Journal of Financial Planning;Dec2003, Vol. 16 Issue 12, p66
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
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.
ACCESSION #
11673947

 

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