Columbus, GA · Member since 2019 · 19 posts · 6 votes
We are currently running numbers on what the best return would be on a mortgage in today's market. Our plan is to pay off the mortgage with all of the extra cash flow (we have the CapEx, Vacancy, PM, and repairs set aside already) and hope to get the best return long term. To me this looks like paying the least amount of interest possible. The question is would it be better to get a 30 year mortgage and payoff a larger principle ($600 extra each month) or get a 15 year mortgage and payoff the the extra principle on a lower interest rate ($350 extra each month)? With all of the cash flow paying the mortgage off, the loan would be paid off in the same amount of time. Thoughts?
Lender · San Antonio, TX · Member since 2020 · 1k+ posts · 1k+ votes
6y
Paying off the mortgage quicker will reduce your ROE, not increase it. That's assuming that you reinvest at a rate higher than your mortgage rate, which is a pretty safe assumption today. However, if you're asking which way you'll pay it off quicker, if you're applying all your free cash flow to the principal, then the answer will always be whichever loan has the lower interest rate. The higher payment on the 15 year is caused by additional principal payments already.
I had not put two-and-two together when I am putting my cash flow into the mortgage myself; thus, taking away from my profits. I appreciate the response and the help.
