This page highlights real estate posts on there topics.
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.
Adjustable Rate Mortgages:
This post was written when the rate 1-1 ARMs (ARMs that adjust after the first year) were at historic lows. Post shows that after one year payments would be lower on a 5-1 or 7-1 ARM. Despite low initial interest rates, a longer term ARM is much less costly than the 1-1 ARM in virtually all circumstances.
Post looks at statistics comparing both interest rates and monthly payments on 30-year FRM and 5-1 ARMs. Currently, all interest rates are low. However, the 5-1 ARM remains a relatively bargain because the FRM-ARM payment differential is near the 75th percentile.