Jewish World Review Nov. 16, 2000 / 18 Mar-Cheshvan, 5761
Ten-year fixed-rate mortgages
DEAR BRUCE: Please solve a mini mystery for me. Despite claims in the financial press that they exist, I have been unable to find anyone offering a 10-year fixed-rate mortgage. My mother, who is 76, A credit, no debt, and has income of $10,000 a month would like to borrow. She also owns a half interest in unencumbered commercial property valued at $2 million. She wants to borrow $250,000 for a house that is priced at $750,000, with $500,000 down. No one has offered anything other than a 15-year note. -- C.C., via e-mail
DEAR C.C.: What possible difference does it make? Get a 15-year mortgage, which is common and can certainly be retired in 10 years with no pre-payment penalty. I would think, however, that with that type of down payment secured by a property where there is two-thirds equity, there are private investors that would find a mortgage for your mother that would be very attractive. You might wish to advertise for one.
DEAR BRUCE: I have been reading your column and notice that you emphasize keeping your home mortgage for tax deduction purposes and investing the remaining funds in hopes of exceeding the mortgage interest. My wife and I are both in our mid 40s and own our home free and clear. Is it possible to take a second mortgage on our house and simply invest the borrowed money? Can if be done and if not, why not? Everyone that I talk to thinks that the idea is crazy, but in theory wouldn't we come out much further ahead? -- G.W., Wagon Town, Pa.
DEAR G.W.: I'm with you all the way. I don't know what your friends are thinking about. I do need to correct you on one point, though. You wouldn't need to take a second mortgage; you would take a first mortgage. You only get a second mortgage if a first is in place. On the first mortgage you will get a more favorable interest rate. Taking a look at the deductibility of the interest on the borrowed money, the likelihood is that you should be able to well outperform the non-activity of leaving the equity in the house. To put it another way, the equity in the house is only earning money for you as the house appreciates. If you invest the money, the house will continue to appreciate in the same fashion, but you have also used the capital in a far more productive
Send your questions to JWR contributor Bruce Williams by clicking here. (Questions of general interest will be answered in future columns. Owing to the volume of mail, personal replies cannot be provided.) Interested in buying or selling a house? Let Bruce Williams' "House Smart" be your guide. (Sales of the book help fund JWR).
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