15 year or 30 year mortgage v.DaveRamsey

[LuxLiving]

noppenbd, why would the insurance company pay you $50,000 on a claim for the land? If the house burned, earthquake or tornado hit, you'd still have the land.

The only scenario I can conceive of anyone allowing you anything for land would be if it fell into some sinkhole or off the coast.

As far as I understand it they aren't insuring land against loss, are they??? Liability if someone breaks their ankle on your lefhandedwebblefritzer, yes.

BTW, don't ya'll just love a good rabbit chase?!? Hopefully there is something educational at the end of this for us!!

[LivingAlmostLarge]

More accidents happen to homes than you can imagine. My uncle's house burned down once (yeah me and his 3 kids caused it, we were 7,8,9, and 13 and playing with fireworks). Our neighbors, her parents house in the same city we lived in shorted from old electrical wiring and went down in flames.

So they rebuilt it with insurance money and yes they did have to pony up some, plus paying for 6 months of living expenses. Then 6 months later tha house got struck by lightening and burned down, no kidding. WTF? Yeah so crap happens and when it hits the fan it really blows.

Pretty much everyone I know, when bad things seem to happen, it seems to snowball.

So insurance wise the house is better off mortgaged? Will the bank fight with the insurance company on your behalf versus no mortgage?

[InDebtInDC]

Respectfully, who here has or knows someone who has filed a homeowner's insurance claim? If so, what was the claim payout ratio to the appraised damage?

[InDebtInDC]

Originally Posted by sweeps

So, are you folks saying that your mortgage lender is going to let you walk away from your mortgage? That they're going to let you pocket the insurance money you got and say, "Well, that's a bummer."?

I have never said this, nor do I think anyone else did.

[InDebtInDC]

Originally Posted by brig2221

What is I pay off my home completely, and my house burns down. Who is responsible? I am of course, being the sole owner of the property. That said, if I have any problems at all in collecting insurance money, or a lower than expected amount, that hits me directly. Even worse, if for some strange reason my claim were to be denied outright, I would be out $150K+. Complete financial ruin!

This is exactly the rationale I subscribe to.

Originally Posted by brig2221

Now lets look at the flipside. Same house burns down, I get screwed around by the insurance company, or I get completely denied by the insurance company. Guess what, the bank that holds my mortgage note is the one now solely in the spotlight for risk. Not that I would ever want to walk away from a loan, but if my house were completely destroyed, and the insurance company denies my claim, I am walking, and only losing whatever equity that I had in the home.

You never ever want to walk away from a foreclosure, but if you had to make a decision between losing a little bit of money and having bad credit, versus losing a lot of money and having good credit, which one is better for your family?

Originally Posted by brig2221

To me, what it comes down to is this. Why take on any additional risk that I don't have to, no matter how miniscule the possibity? Lets not forget, although the risk is very very small, it is a HUGE risk none the less.

This is what most people do not understand. The huge majority of the population do not understand the extent of their insurance coverage. Even in the event of a payable claim, the insurance company may still not pay. Talk to any homeowner affected by Katrina to get the firsthand experience.

Originally Posted by brig2221

For now, I have my money sitting in CD's and MM's earning me interest, and the money is still always there for me to pay off the home at any time if I would want to. That said, I am more than happy to try and make money off of what I have saved now, and to take advantage of the tax breaks I get from having my low interest 30 year fixed mortage.

This isn't so important as moving your money out of the home.

Originally Posted by brig2221

Where I think this applies to the OP's original question is that I would always go with the 30 year note. I believe that DisneySteve framed it perfectly. Have the mortgage company run the numbers for you on a 15 year and a 30 year note, and purchase your home based on what your payments would be on the 15 year note. This does several things. It helps to prevent you from stretching yourself too thin in how much you borrow, and, it gives you leeway to pay the lower 30 year payment when times are tough.

The other factor that I haven't seen taken into consideration is the ability to save more money. What would you rather have in a serious financial emergency situation, $10K in an emergency fund and half your mortgage paid off early, or $30K in your emergency fund and a larger mortgage payoff?

I pose that question because this is exactly what I see a lot of people doing. They establish some set amount for an emergency fund, $10K in my example, and then cease to continue funding in that area. They then turn their attention to doubling up on morgage payments, or paying a few hundred extra per month in order to pay off their mortgage early.

As I noted above, I see a lot of problems with this plan myself. What if you lose your job for an extended period of time, lose medical insurance, and have other problems? Believe me, $10K can vanish in a flash. Guess what, even though you have been paying down that mortage early all these years, you still have a minimum mortgage payment to make every month, and now don't have any money! I would much rather have been putting that extra cash every month into my emergency fund, not my mortgage.

No matter what you decide to do, think about it clearly and with an objective mind. Consider every possible scenario, no matter how unlikely it is to happen. How likely is it that someone will drive a truck into your living room? Not so likely? Think again.


My professional claim experience aside, my previous rental condo was in a decent neighborhood. Within the last year while I owned the property, the following things happened in the neighborhood:

* a drunk driver took out the community mailbox. If the mailbox wasn't there, she would have gone into my neighbor's house.

* I found out that I had termites and problems with the foundation. There was no problem when I bought it several years earlier.

* somebody shot about 50 rounds into my neighbor's house 2 blocks down. The police said it was a random shooting. One person inside was seriously hurt.

* Crime rate started increasing rapidly.

* My property value went down over 15%.

I am sure many more things happened that I wasn't aware of. This was just one of my rental properties.

Like I said, the neighborhood was nice when I bought it. Things just went downhill quickly over the last couple of years. All of these things were beyond my control.


A primary residence probably represents a significant portion of most people's assets, if not all of their assets. It's not something to take lightly, and all perspectives should be considered. The only way to get perspective is to work several hundreds or thousands cases on the topic of insurance and mortgage, or at least learn about it in school. Experience notwithstanding, you should try to learn as much as possible from credible sources to educate yourself in the rare event you need to do something.


While there is no right or wrong answer since the decision depends on the specific situation, please keep jeffrey's post in mind and be courteous to each other.

[noppenbd]

Originally Posted by LuxLiving

noppenbd, why would the insurance company pay you $50,000 on a claim for the land? If the house burned, earthquake or tornado hit, you'd still have the land.

The only scenario I can conceive of anyone allowing you anything for land would be if it fell into some sinkhole or off the coast.

As far as I understand it they aren't insuring land against loss, are they??? Liability if someone breaks their ankle on your lefhandedwebblefritzer, yes.

BTW, don't ya'll just love a good rabbit chase?!? Hopefully there is something educational at the end of this for us!!

Maybe I didn't explain my hypothetical well. The scenario was you have a house worth 200K and the house is totally destroyed, leaving you with the land worth 50K. You then file a claim with the insurance company for the value of the dwelling and contents, but for whatever reason, the coverage is limited to 50K. You would then be left with 100K in assets (50K in cash and 50K in land value). In the two versions, you would either have other assets (investments) with offsetting debt, or no debt and no other assets. In either case your net worth would be 100K.

[jIM_Ohio]

Originally Posted by InDebtInDC

This is exactly the rationale I subscribe to.



You never ever want to walk away from a foreclosure, but if you had to make a decision between losing a little bit of money and having bad credit, versus losing a lot of money and having good credit, which one is better for your family?



This is what most people do not understand. The huge majority of the population do not understand the extent of their insurance coverage. Even in the event of a payable claim, the insurance company may still not pay. Talk to any homeowner affected by Katrina to get the firsthand experience.



This isn't so important as moving your money out of the home.



No matter what you decide to do, think about it clearly and with an objective mind. Consider every possible scenario, no matter how unlikely it is to happen. How likely is it that someone will drive a truck into your living room? Not so likely? Think again.


My professional claim experience aside, my previous rental condo was in a decent neighborhood. Within the last year while I owned the property, the following things happened in the neighborhood:

* a drunk driver took out the community mailbox. If the mailbox wasn't there, she would have gone into my neighbor's house.

* I found out that I had termites and problems with the foundation. There was no problem when I bought it several years earlier.

* somebody shot about 50 rounds into my neighbor's house 2 blocks down. The police said it was a random shooting. One person inside was seriously hurt.

* Crime rate started increasing rapidly.

* My property value went down over 15%.

I am sure many more things happened that I wasn't aware of. This was just one of my rental properties.

Like I said, the neighborhood was nice when I bought it. Things just went downhill quickly over the last couple of years. All of these things were beyond my control.


A primary residence probably represents a significant portion of most people's assets, if not all of their assets. It's not something to take lightly, and all perspectives should be considered. The only way to get perspective is to work several hundreds or thousands cases on the topic of insurance and mortgage, or at least learn about it in school. Experience notwithstanding, you should try to learn as much as possible from credible sources to educate yourself in the rare event you need to do something.


While there is no right or wrong answer since the decision depends on the specific situation, please keep jeffrey's post in mind and be courteous to each other.

I have a friend which flips and rents as a third job on the side (he is a firefighter and runs a safety business for his primary income).

When he rents, he keeps the houses 100% leveraged it at all possible- meaning interest only loans, or 20% down and 30 yr fixed payments. Tieing too much equity/value into home is too much risk.

By being leveraged he
a) keeps more cash liquid
b) puts more risk on price appreciation of property (at time of sale)
c) allows the liquid cash to buy more properties (he has 3 or 4 right now).

His current house is nearly paid off- different set of risks based on plot of land has been in his family for 30-40 years, his income might not be as high as other occupations, and his occupation lends itself to much more risk than the average person.

Comparing the risks between primary residence and rentals is not a level playing field.

[jc3900]

Ok, so how many people does this dooms day partial insurance coverage happen too? Does anyone know a neighbor, friend, or co-worker where this was the case? If not or if the numbers are really really really small then I think the debate should mostly be finished.

[simpleyme]

Originally Posted by jIM_Ohio

I have a friend which flips and rents as a third job on the side (he is a firefighter and runs a safety business for his primary income).

When he rents, he keeps the houses 100% leveraged it at all possible- meaning interest only loans, or 20% down and 30 yr fixed payments. Tieing too much equity/value into home is too much risk.

By being leveraged he
a) keeps more cash liquid
b) puts more risk on price appreciation of property (at time of sale)
c) allows the liquid cash to buy more properties (he has 3 or 4 right now).

His current house is nearly paid off- different set of risks based on plot of land has been in his family for 30-40 years, his income might not be as high as other occupations, and his occupation lends itself to much more risk than the average person.

Comparing the risks between primary residence and rentals is not a level playing field.

a house bought for flipping is not the same as a house that is bought for rental, if you buy a house with plans on turning right around and selling it you would just be sliding your money around so it would not make too much difference ,the risk really on how quick you can fix it up and get rid of it before your carrying costs kill you

a rental is a property that you rent out monthly and collect rents , the risk being your renters will trash the place and not pay rent
how does keeping your self leveraged help in that situation?

the whole leverage yourself to the hilt a Carlton sheets seminar, I am not a fan of that, others are to each his own
ETA;
maybe I misunderstood your friend fixes up rental then rents them out? that not what I think of as flipping
fixing up rentals then renting them is the most heart wrenching thing to do,spend all that money then watch your place get trashed, I would definitely want to cash flow that and not finance it, but differant business models work for differant folks

[jIM_Ohio]

Originally Posted by simpleyme

a house bought for flipping is not the same as a house that is bought for rental, if you buy a house with plans on turning right around and selling it you would just be sliding your money around so it would not make too much difference ,the risk really on how quick you can fix it up and get rid of it before your carrying costs kill you

a rental is a property that you rent out monthly and collect rents , the risk being your renters will trash the place and not pay rent
how does keeping your self leveraged help in that situation?

the whole leverage yourself to the hilt a Carlton sheets seminar, I am not a fan of that, others are to each his own
ETA;
maybe I misunderstood your friend fixes up rental then rents them out? that not what I think of as flipping
fixing up rentals then renting them is the most heart wrenching thing to do,spend all that money then watch your place get trashed, I would definitely want to cash flow that and not finance it, but differant business models work for differant folks

If you are highly leveraged when renting out, if property is trashed you could walk away and not lose the principal you paid on the loan (no principal because propery did not have 20% down). If you are foreclosed, you would lose the 20% down payment, if your are 100% leveraged, you did not lose money you did not put down.

Even when flipping, he takes money out of property- buy a house for 50k which is valued at 100k, he can put 10k down (20% of 50k), then withdraw 40k (leaving 20k of equity in the mortgage) using the 40k to rebuild the house or as cash.

If bank forcloses, he would not lose the 40k cash he took out at closing.

[simpleyme]

okay ,I guess the thing I do not get is the walking away part
I sighn contracts I fulfill them ,I have never signed on anything for anything that I will not fulfill
when you own what you have you never need to walk away I guess that's why I do not get this whole line of thinking

[disneysteve]

Originally Posted by jIM_Ohio

If you are highly leveraged when renting out, if property is trashed you could walk away

Originally Posted by simpleyme

I guess the thing I do not get is the walking away part
I sighn contracts I fulfill them

I'm with you, simplyme. I don't understand the "walk away" comments. How can you walk away? Whether you owe 100%, 50% or 0% of the home's value, you still are the legal owner of the property. If you are renting it out and the renters trash the place, it is your job to make the repairs and make the place livable again. Presumably, you would have insurance that would help cover those costs.

What happens if you "walk away"? Aren't there legal ramifications? Doesn't it trash your credit?

[jIM_Ohio]

Originally Posted by disneysteve

I'm with you, simplyme. I don't understand the "walk away" comments. How can you walk away? Whether you owe 100%, 50% or 0% of the home's value, you still are the legal owner of the property. If you are renting it out and the renters trash the place, it is your job to make the repairs and make the place livable again. Presumably, you would have insurance that would help cover those costs.

What happens if you "walk away"? Aren't there legal ramifications? Doesn't it trash your credit?

But even in the case of using insurance and NOT walking away, it's better to have the insurance putting up 80% of the risk while owner only put up 20% of the risk (based on equity in the house).

Much of investing is not getting highest return, it is getting highest "risk adjusted" return. Meaning lowering risk and lowering the overall return in many cases is acceptable if the original level of risk was too high, or tied too much money up in an illiquid investment.

[simpleyme]

disneysteve
I think this walk away mentality is a major factor the sub prime market , real esate problems we are having

in another thread we talked about using insurance for small claims, not a good idea, we have never filed a claim we just repair things ourselves I must say it is glamorous work cleaning up after renters ;-) most cleanup costs are absorbed from renters deposits

yes you are right even if you do not own things outright ,they are yours and you are responsible for them, it makes life easier if you accept that and just deal with your own problems in the way that makes the most sense for your situation

[jIM_Ohio]

walking away is a worst case situation, but one which should be considered.

Look how rich Donald Trump is, and how many times has he filed for bankruptcy?

[simpleyme]

LOL well you better hurry and file to get your success ball rolling LOL