Quote:
Originally Posted by fotze
Just a bump. Clicked one of moneyguys links and learned some cool sh^t.
http://www.milliondollarjourney.com/...tgage-trap.htm
Damn I wish I read the long term vs short term mortgage part many years ago.
That "rates will go up like the 80's" bit is what always made me go fixed and long. But reading this is very interesting.
2. Rates may go very high like in the 1980s
I was an accountant for a mortgage company in 1982 when mortgage rates peaked at 22.75%. My first mortgage was a 5-year fixed in 1980 at 13.75%. I thought that I had lucked out, since rates jumped to 22.75% and were back to 13.75% by 1985 when it came due. What I didn’t realize was that, even then, I would have saved money by going variable! Based on Peter Draper’s study, I would have lost money for 2 years and saved money for 3 years. So, even with a huge leap of 9% in mortgage rates in the first 2 years of my mortgage, I still lost money with a 5-year fixed rate! |
Back in my real estate owning days I always had variable rate mortgages. I even got them when rates were at "all time lows". For the 7 years that I owned a house, there was a grand total of maybe 10 months where my variable rate was equal to, or greater than what my best fixed rate would have been when I did my mortgage. I remember when it did spike up and the fixed crowd was like I'm so glad I fixed my rate now. Of course at times I was paying like 2% less than what the fixed rate was.