Do 40 year mortgages make more sense for Buy and Hold?
Dearborn, MI · Member since 2019 · 124 posts · 41 votes
Do 40 year mortgages make more sense for Buy and Hold?
Most Popular Reply
Joe VilleneuvePro Member
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votesIf I could get a 100 year loan I would be the first one in line. This would reduce the monthly payment, as you stated, and increase your CF. The interest is paid for by the tenant out of the rent, not you, so the increase in the total interest is a non-issue. The paydown on a mortgage, whether it is a 15, 30 or 100 is back loaded,...meaning the mortgage payments are front loaded in the payments schedule.
Take the same property/loan, and run amortization tables for 15, 30 and 40, and you'll see how little of the actual principle is paid in the first years of a loan. Look even farther down the years of these loans, and you'll see how long it take for the payoffs to accumulate to a number that really matters.
Equity accumulation from appreciation is much greater (it better be) on your properties than from the paydowns. Your mortgage has nothing to do with your appreciation or your property value, and your appreciation has everything to do with property value.
77 Replies
- 3yBjorn AhlbladPro MemberInvestor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
A few years ago there was discussion of 50 year mortgages and I believe 40 year products have been available at some point. The longer you stretch it out the longer it takes to actually start paying down any principal, and you increase the risk for the lender. So you don't really gain as much as you should. My view anyway. But yes you could finance into a shorter term which lots of people have done with 15 and 30 year mortgages.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Nader Hachem:
I've been seeing some recent news on 40-year mortgages. I'm not sure if they even apply to investment properties, but i'm going to assume they do. Would this actually make more sense for Investment properties? Especially in a high interest market? Will this make things easier to get into a first rental property?
Now, one of the biggest cash-flow killers is the high interest rates, i.e. - high monthly mortgage. Would 40-year mortgages make it easier to get into long-term investment properties? I'm speaking on lower cost properties around 150-250K. I know this will also prolong the loan and in the end you end up paying more total for the property.
My thought is that 40 year will allow you to get into these properties easier, since payment is lower which in turn allows for cash flow.. then maybe down the line you could refinance into a shorter loan.
Just some thoughts, i'd like to hear others thoughts too.
the 40 year would drive up speculation for investment property for sure, this is why I personally think FM should not open the floodgates of 40YFRM for rental property. If yes, it would just drive up the price again esp in high cap rate area. For Cash flow investors with min downpayment, investor doesnt care about the equity but care more about making the house as an ATM machine that producing cash flow.
- Rental Property Investor · Member since 2020 · 1k+ posts · 1k+ votes3y
I just did some googling and did not find a lot of information on them or offerings however I can see this becoming a norm. Look at cars, the length of the loans keeps getting longer to keep payments the same as prices rise. If I had the opportunity for a 40 year loan and the interest wasn't obscene where the payment made sense I'd go for that in a heartbeat. When you are in growth mode the interest doesn't really matter much since the tenant is paying it and this gives you more money in cash flow to fund the next one. I think the real kicker is going to be how marketable are they on the secondary market and how does fanny/freddy feel about them.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
7e investments53 Reviews - 3yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
If I could get a 100 year loan I would be the first one in line. This would reduce the monthly payment, as you stated, and increase your CF. The interest is paid for by the tenant out of the rent, not you, so the increase in the total interest is a non-issue. The paydown on a mortgage, whether it is a 15, 30 or 100 is back loaded,...meaning the mortgage payments are front loaded in the payments schedule.
Take the same property/loan, and run amortization tables for 15, 30 and 40, and you'll see how little of the actual principle is paid in the first years of a loan. Look even farther down the years of these loans, and you'll see how long it take for the payoffs to accumulate to a number that really matters.
Equity accumulation from appreciation is much greater (it better be) on your properties than from the paydowns. Your mortgage has nothing to do with your appreciation or your property value, and your appreciation has everything to do with property value.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
It increases cash flow, but if your goal is to keep the property long term and have your tenant pay the mortgage off this will delay it.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Joe Villeneuve:
If I could get a 100 year loan I would be the first one in line. This would reduce the monthly payment, as you stated, and increase your CF. The interest is paid for by the tenant out of the rent, not you, so the increase in the total interest is a non-issue. The paydown on a mortgage, whether it is a 15, 30 or 100 is back loaded,...meaning the mortgage payments are front loaded in the payments schedule.
I already guess what Joe's answer would be in this very topic :-)
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
- Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes3y
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
You have long term debt with high interest rate without any significant of building equity and a small downpayment. If you have 5% LTV and there's recession, people would just leave the property as asset doesnt mean anything
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes3y
If you can get a 40 year mortgage, sure. They would certainly help with cash flow and DSCR requirements these days. But they're not easy to find. Here in KC, we're lucky to get a 25 year mortgage. Even a 30 year mortgage isn't going to happen where I'm at.
- Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes3y
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
You have long term debt with high interest rate without any significant of building equity and a small downpayment. If you have 5% LTV and there's recession, people would just leave the property as asset doesnt mean anything
Point taken but here's what I think:
1. The term of the loan is irrelevant. 30 year or 40 year or 50 year mortgage, if people are going to walk away from the property, they are not going to because of the length of their term.
2. Interest rates typically drop in a recession. So if a recession does come (it probably will), then in theory rates should come back down at that time. Which will give these homeowners an opportunity to refinance and lower their payment.
3. Walking away from your housing obligation is much easier than you make it sound. It is financially and morally irresponsible, not to mention emotionally damaging. We saw a lot of this from 2008-2011 due to homeowners experiencing adjustable rate loans maturing, prepayment penalties, and unprecedented levels of unemployment, death, divorce, and disability. I had to use a cliche, but this time it's different. I do not believe we will see a lot of people walk away from their homes this time around if we experience a mild recession.
- 3yStephanie P.Pro MemberWashington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
Quote from @Andrew Syrios:
If you can get a 40 year mortgage, sure. They would certainly help with cash flow and DSCR requirements these days. But they're not easy to find. Here in KC, we're lucky to get a 25 year mortgage. Even a 30 year mortgage isn't going to happen where I'm at.
40 fixed year mortgages are available in your area.
- Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes3y
Hey @Nader Hachem - it depends on deal by deal basis as well as what you're comfortable with.
Some people like the idea of more cashflow, since they know their exit plan is much earlier than the 30 or even 40 year note ends. Others don't like the idea of owing more money in interest and are against it.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes40 YR will be a real possibility, I feel. The investor option with it, you're 100% right. Prices will RUN on that. It'll make the first time homebuyer or primary homebuyer go far, far back in the line and may actually make the investor: homeowner ratio widen.
Quote from @Carlos Ptriawan:
Quote from @Nader Hachem:
I've been seeing some recent news on 40-year mortgages. I'm not sure if they even apply to investment properties, but i'm going to assume they do. Would this actually make more sense for Investment properties? Especially in a high interest market? Will this make things easier to get into a first rental property?
Now, one of the biggest cash-flow killers is the high interest rates, i.e. - high monthly mortgage. Would 40-year mortgages make it easier to get into long-term investment properties? I'm speaking on lower cost properties around 150-250K. I know this will also prolong the loan and in the end you end up paying more total for the property.
My thought is that 40 year will allow you to get into these properties easier, since payment is lower which in turn allows for cash flow.. then maybe down the line you could refinance into a shorter loan.
Just some thoughts, i'd like to hear others thoughts too.
the 40 year would drive up speculation for investment property for sure, this is why I personally think FM should not open the floodgates of 40YFRM for rental property. If yes, it would just drive up the price again esp in high cap rate area. For Cash flow investors with min downpayment, investor doesnt care about the equity but care more about making the house as an ATM machine that producing cash flow.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votesWe won't see a lot of people walk away from their home, obviously every market is different but:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
You have long term debt with high interest rate without any significant of building equity and a small downpayment. If you have 5% LTV and there's recession, people would just leave the property as asset doesnt mean anything
Point taken but here's what I think:
1. The term of the loan is irrelevant. 30 year or 40 year or 50 year mortgage, if people are going to walk away from the property, they are not going to because of the length of their term.
2. Interest rates typically drop in a recession. So if a recession does come (it probably will), then in theory rates should come back down at that time. Which will give these homeowners an opportunity to refinance and lower their payment.
3. Walking away from your housing obligation is much easier than you make it sound. It is financially and morally irresponsible, not to mention emotionally damaging. We saw a lot of this from 2008-2011 due to homeowners experiencing adjustable rate loans maturing, prepayment penalties, and unprecedented levels of unemployment, death, divorce, and disability. I had to use a cliche, but this time it's different. I do not believe we will see a lot of people walk away from their homes this time around if we experience a mild recession.
1) Lots of homeowners are locked in at a low rate.
2) There's still a real lack of supply
3) The cost to build is still extremely high(relatively)
4) Land value(in good areas) have skyrocketed, and with less available it won't go down.Every large investor I know of is buying now, knowing we'll face a bump here in 2-6 months, but the availability of these houses will still remain scarce. Own the asset comfortably, worry about the other issues later. Granted, most of these investors that I talk to that do leverage know they'll deleverage very quickly or don't even leverage. Different types of folks than the one's here that will buy a F property making $200/mo versus a B+ property losing them $-100 just cause of year 1 pro forma.
- Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes3y
40 Year is NOT available on government conventional/FHA/VA/USDA . Some persons have erroneously posted 40 year is now okay in May. Not. It's available on FHA MODIFICATIONS case by case- so if you have an owner occupied loan and are in financial hardship and can prove you still qualify for the 40 year they will case by case offer the little bit lower payment.
NON QM lenders have 40 year loans, rates are higher and the trade off for a little lower payment, well, not great.
No hard money (that I know of) lender wants to do a 40 year, asking for it indicates how your knees tremble.
You qualify with the lower payment which is good.
$200000 loan 30 year PI $1314 40 Year PI $1225 this uses 6.875 rate which is not a rate commitment or real deal just showing the small difference. However sometimes you need to decrease your debt to income ratio by a tiny bit and this plus ten other tweaks will get you under the required DTI and approved. Call for all the ways to execute this...
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Mohammed Rahman:
Hey @Nader Hachem - it depends on deal by deal basis as well as what you're comfortable with.
Some people like the idea of more cashflow, since they know their exit plan is much earlier than the 30 or even 40 year note ends. Others don't like the idea of owing more money in interest and are against it.
mathematically speaking, 40YFRM is an excellent loan for the cash-flow market. Eg: creating a monthly pay for the investor from a little bit of asset.
while 10YFRM is the way to go for true wealth builders in the appreciation market as we want to make equity building as fast as possible.These are the two different spectrums.
So use 10/15YFRM in CA/HI ; use 40YFRM in AL/OH/IN - Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
You have long term debt with high interest rate without any significant of building equity and a small downpayment. If you have 5% LTV and there's recession, people would just leave the property as asset doesnt mean anything
Point taken but here's what I think:
1. The term of the loan is irrelevant. 30 year or 40 year or 50 year mortgage, if people are going to walk away from the property, they are not going to because of the length of their term.
2. Interest rates typically drop in a recession. So if a recession does come (it probably will), then in theory rates should come back down at that time. Which will give these homeowners an opportunity to refinance and lower their payment.
3. Walking away from your housing obligation is much easier than you make it sound. It is financially and morally irresponsible, not to mention emotionally damaging. We saw a lot of this from 2008-2011 due to homeowners experiencing adjustable rate loans maturing, prepayment penalties, and unprecedented levels of unemployment, death, divorce, and disability. I had to use a cliche, but this time it's different. I do not believe we will see a lot of people walk away from their homes this time around if we experience a mild recession.
@Chris Seveney mentioned he see the rising of FHA loan defaults recently. Remember for those who only put 5% down , lets say they put 10k , but then there's natural disaster or roof issue, and 30k cost, they would just exit from the house rather fixing. Making the lender as the baggage holder.
The interest rate matter a bit because with 40 YFRM (I have not calculated the amortization schedule) and 5% down, even in the year 10 your LTV would be only, what? 10-15% ?
I guess 40YFRM is extremely useful for cash-flow investor, but terrible idea for homeowner.
- Contractor · Scottsdale, AZ · Member since 2010 · 2k+ posts · 3k+ votes3y
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
You have long term debt with high interest rate without any significant of building equity and a small downpayment. If you have 5% LTV and there's recession, people would just leave the property as asset doesnt mean anything
Point taken but here's what I think:
1. The term of the loan is irrelevant. 30 year or 40 year or 50 year mortgage, if people are going to walk away from the property, they are not going to because of the length of their term.
2. Interest rates typically drop in a recession. So if a recession does come (it probably will), then in theory rates should come back down at that time. Which will give these homeowners an opportunity to refinance and lower their payment.
3. Walking away from your housing obligation is much easier than you make it sound. It is financially and morally irresponsible, not to mention emotionally damaging. We saw a lot of this from 2008-2011 due to homeowners experiencing adjustable rate loans maturing, prepayment penalties, and unprecedented levels of unemployment, death, divorce, and disability. I had to use a cliche, but this time it's different. I do not believe we will see a lot of people walk away from their homes this time around if we experience a mild recession.
@Chris Seveney mentioned he see the rising of FHA loan defaults recently. Remember for those who only put 5% down , lets say they put 10k , but then there's natural disaster or roof issue, and 30k cost, they would just exit from the house rather fixing. Making the lender as the baggage holder.
The interest rate matter a bit because with 40 YFRM (I have not calculated the amortization schedule) and 5% down, even in the year 10 your LTV would be only, what? 10-15% ?
I guess 40YFRM is extremely useful for cash-flow investor, but terrible idea for homeowner.
In the event of a natural disaster or roof issue and a $30k cost, the insurance company will be footing the bill. Not the homeowner. You saying "they would just exit the house rather than fixing" is such an abstract opinion to have. Where are you getting this information?
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
You have long term debt with high interest rate without any significant of building equity and a small downpayment. If you have 5% LTV and there's recession, people would just leave the property as asset doesnt mean anything
Point taken but here's what I think:
1. The term of the loan is irrelevant. 30 year or 40 year or 50 year mortgage, if people are going to walk away from the property, they are not going to because of the length of their term.
2. Interest rates typically drop in a recession. So if a recession does come (it probably will), then in theory rates should come back down at that time. Which will give these homeowners an opportunity to refinance and lower their payment.
3. Walking away from your housing obligation is much easier than you make it sound. It is financially and morally irresponsible, not to mention emotionally damaging. We saw a lot of this from 2008-2011 due to homeowners experiencing adjustable rate loans maturing, prepayment penalties, and unprecedented levels of unemployment, death, divorce, and disability. I had to use a cliche, but this time it's different. I do not believe we will see a lot of people walk away from their homes this time around if we experience a mild recession.
@Chris Seveney mentioned he see the rising of FHA loan defaults recently. Remember for those who only put 5% down , lets say they put 10k , but then there's natural disaster or roof issue, and 30k cost, they would just exit from the house rather fixing. Making the lender as the baggage holder.
The interest rate matter a bit because with 40 YFRM (I have not calculated the amortization schedule) and 5% down, even in the year 10 your LTV would be only, what? 10-15% ?
I guess 40YFRM is extremely useful for cash-flow investor, but terrible idea for homeowner.
In the event of a natural disaster or roof issue and a $30k cost, the insurance company will be footing the bill. Not the homeowner. You saying "they would just exit the house rather than fixing" is such an abstract opinion to have. Where are you getting this information?
from HML underwriter.
- 3yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Scott E.:
Quote from @Carlos Ptriawan:
Quote from @Chris Seveney:
@Adam Martin
The issue with 40 year mortgages if they are fha is the limited down payment and higher interest rate.
Right now fha loan defaults are over 10%, take any market where prices will be stagnant for a period of time and the loans will be under water for the first 10+ years which will lead to more defaults.
Most of these loans will be in those areas where appreciation is small, so this could be a recipe for disaster.
in theory, all these 40-50 year mortgage with small downpayment FHA loan with high-interest rates would just create another economic disaster.
How so?
You have long term debt with high interest rate without any significant of building equity and a small downpayment. If you have 5% LTV and there's recession, people would just leave the property as asset doesnt mean anything
Point taken but here's what I think:
1. The term of the loan is irrelevant. 30 year or 40 year or 50 year mortgage, if people are going to walk away from the property, they are not going to because of the length of their term.
2. Interest rates typically drop in a recession. So if a recession does come (it probably will), then in theory rates should come back down at that time. Which will give these homeowners an opportunity to refinance and lower their payment.
3. Walking away from your housing obligation is much easier than you make it sound. It is financially and morally irresponsible, not to mention emotionally damaging. We saw a lot of this from 2008-2011 due to homeowners experiencing adjustable rate loans maturing, prepayment penalties, and unprecedented levels of unemployment, death, divorce, and disability. I had to use a cliche, but this time it's different. I do not believe we will see a lot of people walk away from their homes this time around if we experience a mild recession.
@Chris Seveney mentioned he see the rising of FHA loan defaults recently. Remember for those who only put 5% down , lets say they put 10k , but then there's natural disaster or roof issue, and 30k cost, they would just exit from the house rather fixing. Making the lender as the baggage holder.
The interest rate matter a bit because with 40 YFRM (I have not calculated the amortization schedule) and 5% down, even in the year 10 your LTV would be only, what? 10-15% ?
I guess 40YFRM is extremely useful for cash-flow investor, but terrible idea for homeowner.
You got people still preaching 3.5-5% down househack is the route to go. Go put 3.5-5% down, see how terrible you'd suffer on your payment. When you rent out the other 1-3 units you'll be buried alive....still.
Low downpayment homeowners are all about to struggle the most. We've seen savings decrease, credit cards utilization increase, auto loans having issues, people with limited cash flow will suffer. People leveraged and hoping for cash flow will too. The low downpayment homeowner can't pay their mortgage, but the no homeowner renter in that same situation is going to stiff rent too. That's who you rent to when you rent to C, D properties.
- Realtor · Hendersonville, TN · Member since 2020 · 16 posts · 10 votes3y
I definitely feel like it would be a good way to get your foot in the door on rental properties. I think that price point there is not too much harm, but still have that plan of refinancing into a shorter mortgage down the road.
But to me, it does feel like a not so bad strategy to get into your first property! At the end of the day, if you get a good enough deal on the purchase price, then you'll have success. Focus more on the property itself, and if a 40 year mortgage is the only way to acquire that property, then go for it!
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
@Luke McMullen
I do not believe FHA loans are not available for non owner occupied properties so this would not help for rental properties.
7e investments53 Reviews - Investor · Tempe, AZ · Member since 2019 · 104 posts · 66 votes3y
@Nader Hachem
Let's look at an infinity year loan (I.e. interest only).
400k at 7% is 2,333. The payment will never be lower than that (let's not talk about negative amortization for the moment).
For 15 years it's 3,595, for 30 years it's 2,661, and for 40 years it's 2,485.
As you can see, there's diminishing returns for lengthening the loan term. Someone mentioned 100 years, maybe dropping the payment $50 from 40 years but extending the loan by 60 years.
If you're all about cash flow, and/or don't care about paydown, get an interest only loan (they do exist, even DSCR, which helps in qualifying the ratio because there's no principal in the payment). You can always opt to pay principal at any point if you decide you start caring about paydown.
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