15-year fixed rate vs. 30 year fixed rate when trying to expand

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15-year fixed rate vs. 30 year fixed rate when trying to expand

Lexi Narducci
Member since 2021 · 5 posts · 1 vote

I bought my first home in August 2020 and took out a loan of $450,000 with a 2.5% interest rate over a fixed 30-year period. Not surprisingly, most of my monthly payments are going towards interest with the 30-year fixed loan. My question is: should I switch to a 15-year fixed loan and put more money towards my mortgage on my current property so that I am paying more on the principle rather than interest or should I continue with the 30-year fixed rate so that although I'd pay more in the long run, I am paying a lower price each month, allowing me to save up to purchase a property to rent out and make a profit off that? 


I am open to the idea of investors so that I can grow more quickly, but I would definitely need to purchase my first investment property and prove that I can be successful before finding investors. My end goal is to do long-term furnished housing in cities.

Any help would be appreciated. Thanks! 

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Kyle J.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
5y

@Lexi Narducci  There is no one-size-fits-all, or only one right answer, to this question.  It's been debated on here a million times, and the answer always comes back to what is right for the individual and their specific goals.  

However, with that being said, generally speaking if you're still in the early stages of your investing career and working on acquiring your first investment property and expanding your rental portfolio, you will be much better off going with 30 year mortgages. There are many reasons for this, such as being able to lock in long-term low rate financing. But the main reason is that 15 year mortgages at this early stage of your investing would likely cause problems with your DTI ratio as you grow since the required payments would be much higher.

Now you could always make extra principal payments towards your 30 year mortgages and pay them off as if they were 15 year mortgages if you REALLY wanted to do that. You don't need to refinance to do that. And that way that higher payment wouldn't be required and wouldn't count against you in your DTI ratio as you continued to grow and try to qualify for additional mortgages.

Just something to think about.

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  • Brad HammondBusiness Member
    Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
    5y

    Hi @Lexi Narducci.  I think it depends on your comfort level with debt.  I would encourage you to pay the minimum amount you can since rates are so low right now.  These interest rates are truly a gift that you will never see again.  If it were me, I would try and get as much smart debt as I could with long-term fixed-rated mortgages.  

    If you do want to try and pay it down, I don't think it would be worth the extra cost of refinancing into a 15-year loan.  I would just pay more on your current loan so you can pay it off sooner.  Yes, your rate will be higher but if you run into a financial rough patch, you will have a lower minimum amount that you would have to pay.  

    0Reply
  • Justin Hu
    Member since 2021 · 1 post · 0 votes
    5y

    I'm a huge fan of the 15 year mortgage for your personal residence, especially if you are older. It is really nice to see that money is actually going to pay down the balance. However, as low as the rates are your house will probably appreciate in value at a rate higher than the interest rate. I think it depends on what you are doing with your excess money. If you have money to spare that you are blowing on luxuries, I'd go for the 15 year and scale back the spending. If you are saving every penny to get into the real estate game I'd state at 30.

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  • Joe VilleneuvePro Member
    Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
    5y

    If you're property is cash flow positive, then you're not paying the interest...your tenant is.  When you cut back to 15 year, and your payment goes up, all you're doing is taking cash flow out of your pocket.  Your mortgage is already being paid off for you by the tenant.  Why would you want to help them, out of your own pocket, if you don't have to?

    The 15 year mortgage helps nobody but the lender.

    0Reply
  • Justin Phillips
    Lender · Phoenix, AZ · Member since 2018 · 440 posts · 256 votes
    5y

    I'd highly recommend checking out a first position HELOC, If qualification is there, it will blow a 30 year and 15 year both out of the water in terms of interest saved, cashflow and flexibility.
    The one my wife and I have set up on our property is tied to a zero-balance-sweep checking account that sweeps all activity directly towards our remaining balance. So every dollar we deposit goes directly towards the principal balance, saving interest cost. The “Payment” is an interest only cost that just gets added to the balance once a month. It’s starts much cheaper than the 30/15yr Amm. payment would be, and it snowballs, becoming cheaper every month with positive cash.
    Plus it’s a line of credit, so you retain access to equity for the 30 year term, allowing you to purchase additional properties all with the one loan.

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  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    5y

    @Lexi Narducci  There is no one-size-fits-all, or only one right answer, to this question.  It's been debated on here a million times, and the answer always comes back to what is right for the individual and their specific goals.  

    However, with that being said, generally speaking if you're still in the early stages of your investing career and working on acquiring your first investment property and expanding your rental portfolio, you will be much better off going with 30 year mortgages. There are many reasons for this, such as being able to lock in long-term low rate financing. But the main reason is that 15 year mortgages at this early stage of your investing would likely cause problems with your DTI ratio as you grow since the required payments would be much higher.

    Now you could always make extra principal payments towards your 30 year mortgages and pay them off as if they were 15 year mortgages if you REALLY wanted to do that. You don't need to refinance to do that. And that way that higher payment wouldn't be required and wouldn't count against you in your DTI ratio as you continued to grow and try to qualify for additional mortgages.

    Just something to think about.

    1Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    5y
    Originally posted by @Lexi Narducci:

    I bought my first home in August 2020 and took out a loan of $450,000 with a 2.5% interest rate over a fixed 30-year period. Not surprisingly, most of my monthly payments are going towards interest with the 30-year fixed loan. My question is: should I switch to a 15-year fixed loan and put more money towards my mortgage on my current property so that I am paying more on the principle rather than interest or should I continue with the 30-year fixed rate so that although I'd pay more in the long run, I am paying a lower price each month, allowing me to save up to purchase a property to rent out and make a profit off that? 


    I am open to the idea of investors so that I can grow more quickly, but I would definitely need to purchase my first investment property and prove that I can be successful before finding investors. My end goal is to do long-term furnished housing in cities.

    Any help would be appreciated. Thanks! 

    You have a great interest rate.  Don't change it.  Just pay the 30 year like a 15 to pay the principal down faster.  One of the best parts about the 30 year is it helps with your debt ratio as you're scaling your business, but doesn't have a prepayment penalty so you can pay it down faster than the standard amortization schedule.

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  • Daniel B.
    Rental Property Investor · Saint Louis, MO · Member since 2012 · 115 posts · 42 votes
    5y

    @Lexi Narducci

    You timed the interest rate market perfectly. You won’t beat that rate. May not see it again in your lifetime, don’t lose it/refi out of it.

    You can do 15/20 yr on future properties but that is CHEAP Money

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