Aulerich, 2004(2), Effect of Net Worth of 15- and 30- Year Mortgage Term

Financial
Counseling and Planning

The Journal of the
Association for Financial
Counseling and
Planning Education


VolumeĀ  15(2),
2004

Effect of Net Worth of
15- and 30- Year Mortgage Term

John R. Aulerich

    The choice between a
    15-year and 30-year fixed-rate mortgage term is evaluated considering
    the borrower’s income tax rate, ability to itemize deductions, access
    to tax-deferred savings, and risk aversion. The difference between
    payments on the two options is assumed to be regularly deposited in an
    investment account. Results indicate the best choice for the mortgage
    term depends on the borrower’s eligibility to invest in a tax-deferred
    account, return on the investment account, tax rate, risk aversion,
    interest rate on the mortgage, and spread between the two mortgage
    rates, but not on the amount of the mortgage loan if the borrower is
    able to itemize deductions.

    Keywords: Mortgage loans