Tri State Area FCU President Jim Martinez
“I’m too old for a 30-year mortgage!”
Au contraire my friend. In fact, the conservative side of me says that it may make all the sense in the world to take a 30-year mortgage rather than a 15-year mortgage, regardless of your age. Have you ever considered what would happen if you normally depend on two incomes in the household and suddenly one of them is gone? Typically, the response I get to that question is, “We have plenty of life insurance if something bad happens.” Yes, it’s wonderful to have plenty of life insurance if your loved one dies. However, if the individual lives but can no longer work due to a debilitating illness, it can wreak havoc on household finances. Living on one income coupled with what disability pays may make it impossible to cover expenses. It certainly can make life much more difficult.
So, a 30-year mortgage as opposed to a 15-year mortgage provides the advantage of having a smaller more manageable payment due each month if such a catastrophe were to strike. After such an occurrence, a member will often look to refinance debt to lower payments and increase cashflow, both needed if household income is drastically reduced. However, because it may be more difficult to qualify for a loan with the new lower income, refinancing debt to get household finances in order after a catastrophe may not be possible.
Another comment I often hear is, “But I don’t want to pay my mortgage over the next 30 years because I’m getting too old.” For the members who don’t want to pay “forever,” I would say to simply calculate the estimated payment needed to pay off the mortgage over 15 (or desired number) years, and then pay that monthly payment. To make life easier you may even ask to get a 15-year coupon book for a 30-year mortgage. This is especially helpful for members who know they will pay the amount on the coupon and aren’t likely to pay extra each month. Of course, I always encourage the easiest route which entails having direct deposit into an account and an automatic monthly transfer payment to the mortgage loan. Considering that the difference between the 30-year mortgage rate and the 15-year mortgage rate is likely only ¼ to 3/8%, it’s often worth it to go with the longer term (even if you pay more interest) to have peace of mind in case the unexpected happens.
So, do you still think you are too old for that 30-year mortgage? I don’t think so☺.
Guest columnist Jim Martinez has been in “banking” for 33 years and has been president of Tri State Area FCU for the past 20 years. He was born and raised in the tri state area, graduated from Hoosick Falls Central School and received his bachelor’s at St. Lawrence University and master’s at Northeastern University.