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Real Estate

First topic is the choice between 15-year FRMs and 15-year FRMs.   I find 15-year FRMs superior for those who can afford the payment.

The second topic looks at the mathematics of mortgage qualification for households that have a lot of student debt.   In particular, I ask if and when the household should convert to a 20-year mortgage in order to purchase a home.

The third topic looks at costs and benefits associated with ARMs.  I find that ARMs that adjust after one year are extremely risky.   However, ARMS that adjust after 5 or more year deserve consideration.

I hope these posts are useful to you!

Choice Between 15-year FRM and 30-year FRMs:

Post compares outcomes from use of 30-year FRM to a 15-year FRM.   This post presents actual formulas for mortgage calculations.  (Most of my posts use pre-programmed Excel formulas.)  The 15-year FRM strategy involves a higher down payment equalizing monthly payments across the two scenarios.

Post examines a situation where the 30-year FRM is 1.0 percentage point higher than the 15-year FRM but the homeowner has a high marginal tax rate.   The IRR is much better on the 15-year FRM despite the homeowner’s high marginal tax rate.

Mortgage Qualification Issues:

Post creates a calculate that shows how much income a person must have to purchase a \$300,000 home with a 90% LTV mortgage.  Two households have \$50,000 in student debt and non-trivial other consumer loans.  Post shows gain from extending student debt to a 20-year term is small compared to additional cost.

Post creates a calculator that shows how much house a person can qualify for given her income.  Two households in this example have \$100,000 in student debt but no other consumer loans.   A household that converts a 10-year student loan to a 20-year student loan can qualify for a much larger mortgage.   But the cost in terms of additional payments on student loans is large.