loan life? - Posted by pete

import · January 5, 2003, 3:18pm

Posted by Lucy the Mortgage Broker on January 08, 2003 at 15:59:34:

That is one way the loan could be paid off early, but is not typical of the way we think of the loan’s life being short. Let’s say you move into your new house today. Five years from now, you get a job transfer. You sell the house. The loan is paid off. The loan’s life was five years…not 30! Or, interest rates drop. In 1996, you were happy with an 8.5% rate. You refinance today at 6%. The life of that loan was seven years.

import · January 5, 2003, 3:18pm

Posted by pete on January 05, 2003 at 16:18:15:

Read this sentence:

“The average life of a 30-year loan is now under nine years.”

How can a loan be both a 30 year loan and under 9 years? Does it mean that people prepay some of the loan in the beginning to buy down the loan length?

Thanks
Pete

import · January 5, 2003, 3:23pm

Re: loan life? - Posted by Lucy Brenton

Posted by Lucy Brenton on January 05, 2003 at 16:23:00:

This simply refers to the fact that people refinance and move often. Typically, most people don’t live in the same house for 30 years, therefore the loan life is much shorter, on average, because they are paid off early.

import · January 7, 2003, 9:07pm

Re: loan life? - Posted by bjchetham

Posted by bjchetham on January 07, 2003 at 22:07:05:

Would that be wise to do for residential rental properties which already produce positive cashflow?
Thanks in advance

import · January 7, 2003, 8:37pm

Re: loan life? - Posted by pete

Posted by pete on January 07, 2003 at 21:37:28:

So people will pay more than their usually monthly payment requirements and this will bring the loan life closer to an end?

thanks
pete

import · January 5, 2003, 9:45pm

Re: loan life? - Posted by GMann

Posted by GMann on January 05, 2003 at 22:45:11:

Right on the money.

That is why the 10 year bond has always been the benchmark for mortgages and not the 30 yr. bond.

import · January 8, 2003, 3:14pm

Re: loan life? - Posted by Lucy the Mortgage Broker

Posted by Lucy the Mortgage Broker on January 08, 2003 at 16:14:08:

In my personal opinion, probably not. If the house has a positive cash flow, the house is an asset. It puts money in your pocket. If you look at the opportunity cost (what you could be doing with the cash flow rather than paying down the mortgage) chances are you can use that money better today to either live, or to make other deals. At today’s interest rates, given the time-value of money, most cash flow is better lived on or put to making more deal, IMHO.