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

Download Journal

Comments are closed.