15 Vs 30 Year Mortgage

7 Replies

First, I'm kind of new around here, is there a search bar I haven't found? I'm sure this question has been asked 100+ times..

 We have one Short term rental property right now with a 30 year mortgage. Looking to buy another property in January or February for long term rental and thinking about a 15 year mortgage. The property we're looking at would still cash flow, only looking at a $55k mortgage after down payment estimated an extra $134 a month in mortgage payment to save $35k in interest. Seems like a no brainer, any arguments against doing a 15 year on a property that still cash flows?

Thank you for any responses.. Merry Christmas!

Dave

@DAVE ROSA I'm new to the game myself, and will preface that I still don't have any properties to my name yet. I'd like to think others with more experience and skin in the game would echo my sentiments though that as long as you've got all your numbers plugged in (taxes, insurance, repairs, CapEx, etc.) and it cash flows then all systems should be good to go!

The general consensus is that the 30yr option is the better route to go if you are trying to grow your business as it gives you more cashflow to continue to purchase your second, third, fourth etc property.  If you want free and clear properties, you can always pay your 30yr loan off faster and pay it like a 15yr loan, but you can't pay your 15yr loan as if it were a 30yr.  This gives you the option to not have nearly as high of a payment should you ever hit a rough spot financially.  


Also you aren't really "saving" 35k by paying it off faster due to the time value concept of money.  To put it simply a dollar is not always a dollar.  A dollar today is worth more than a dollar 10yrs from now, which is worth more than a dollar 30 years from now.  


Since you are paying a 15yr mortgage off faster, you are using more "today dollars", as opposed to a 30yr mortgage which uses more "tomorrow dollars".  Due to inflation if you owed $1000/month, 30 years from now that would only be the equivalent of $411 worth of actual purchasing power if you assume a 3% rate of inflation.

Finally, paying off a loan faster essentially means your money is earning the rate of interest on the mortgage. If you had 10k in cash, would you pay down a loan with a 4-5% interest rate, or would you invest that 10k towards your next deal? Most people would invest it in their next deal as they can earn significantly higher ROI than a meage 5% interest payment savings.

@DAVE ROSA

Here’s my 2 cents. Get a nice fixed 30 year. Calculate what you would have been paying if you had gotten the 15 year mortgage. Pay that amount towards the 30 year mortgage.

And here’s why. If crap hits the fan, and you can’t rent, market crashes, ect ect you aren’t stuck with that higher mortgage payment. You can stop doubling down on the mortgage, and instead just pay that low 30 year payment.

Hope this makes sense.

It really depends on what your goals are going to be.  Do you want 10k per month cash flow, 100k?

If you are looking to acquire a lot of property a 30 year loan might be the way to go.  Typically with a 30 year loan you will have more cash flow which you can reinvest into the next property.

However if you want to retire in 20 years, but don't want 20 properties than a 15 year mortgage might work in your plan.

You could always take out a 30 year mortgage and put extra money down on the principal later.

Regardless of whether you choose a 15 or 30 year loan.  Cash flow is king.

Hay @DAVE ROSA :

Welcome to BP, congrats on your investment and good luck on your new investment. 

Someone once asked me why I took a 30yr mortgage, my answer was because my mortgage lender didn't offer a 60yr mortgage.


 

@DAVE ROSA I enjoy options... more time for your money will give you options. If you can qualify for a 30, perhaps do that. You can throw 10x the money at the loan if you choose to but if something happens and you need that lower payment it is there.

My opinion is to use the 30 year and not pay more. Use the slow equity and extra cash for the next deal. If you can buy and rehab then you could have equity and cash flow buying one property while the refinanced money from the rehab buys another. The fancy word people like to use is velocity.

Originally posted by @Bob Daniels :

The general consensus is that the 30yr option is the better route to go if you are trying to grow your business as it gives you more cashflow to continue to purchase your second, third, fourth etc property.  If you want free and clear properties, you can always pay your 30yr loan off faster and pay it like a 15yr loan, but you can't pay your 15yr loan as if it were a 30yr.  This gives you the option to not have nearly as high of a payment should you ever hit a rough spot financially.  

Also you aren't really "saving" 35k by paying it off faster due to the time value concept of money.  To put it simply a dollar is not always a dollar.  A dollar today is worth more than a dollar 10yrs from now, which is worth more than a dollar 30 years from now.  

Since you are paying a 15yr mortgage off faster, you are using more "today dollars", as opposed to a 30yr mortgage which uses more "tomorrow dollars".  Due to inflation if you owed $1000/month, 30 years from now that would only be the equivalent of $411 worth of actual purchasing power if you assume a 3% rate of inflation.

Finally, paying off a loan faster essentially means your money is earning the rate of interest on the mortgage. If you had 10k in cash, would you pay down a loan with a 4-5% interest rate, or would you invest that 10k towards your next deal? Most people would invest it in their next deal as they can earn significantly higher ROI than a meage 5% interest payment savings.

Very well said.. Thank you all for the input. 

 

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