15 year vs 30 year mortgage
Member since 2023 · 2 posts · 2 votes
15 year vs 30 year mortgage
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesHa ha. Many interesting answers here - as always on BP. Really these answers are PERSONAL - in other words it’s impossible to answer without knowing your risk/reward tradeoff, your personal financial situation, your anticipated income and expenditures for the future, etc, etc,.
Most quotes I’ve seen offer a lower interest rate for a 15 year mortgage. So in terms of absolute cost the 15 year will be less costly. Because the monthly payment will be larger the after mortgage payment cash flow will be less with a 15 year mortgage, despite the fact that the amount of interest paid will be less due to the lower rate and faster amortization.
Another part of the equation is the ROI that you can invest the additional cash flow at.
Any advice anyone gives is based on THEIR risk/return criteria, not yours.
Here’s mine. I like 15 year because I can envision owning the property free and clear with significant asset value and significant cash flow in 15 years, while I have trouble envisioning 30 years. Not very “scientific” but that’s just the way I think. On the other side I’d want to accumulate an “emergency” fund asap to have the most important asset a real estate investor can have during a downturn - staying power. So these two are pulling me in opposite directions.
Should you not be able to make a clear decision based on all the “information” we posters have postered, you can always do what I as a professional real estate investor, syndicator and fund manager has done - flip a coin.
23 Replies
- 1ySeth McGatheyBusiness MemberReal Estate Agent · Milwaukee WI · Member since 2024 · 321 posts · 255 votes
The thing is, if you want to pay off a 30 year faster, you can. Then you pay less interest. But if you are going to rent the property out, you aren't paying the interest either way. I got a 15 year on my primary before I got into investing. And I regret it. I wish I had that extra cash to put towards further investments.
Seth McGathey - Shorewest Realtor4.912 Reviews - 1yWilliam WhitleyBusiness MemberAccountant · TN · Member since 2025 · 146 posts · 92 votes
There are a few considerations in making a decision here. First off, if you go 15 year mortgage, you are locked into that higher payment. If you go 30 year mortgage, you have the option to pay extra each month towards principal or the flexibility to simply make the regular payment.
The saying cash flow is king is absolutely correct. If you go with the higher payment on a 15 year mortgage, and then some units go vacant, you have to still make that higher payment. Under the 30 year option, you can make the lower payment when this happens and make a higher payment towards principal when cash flow allows for it.
If all goes well, you can still pay off a 30 year mortgage in 15 years, but have the flexibility of making that decision based on the cash flow and performance of your property.
Beyond that, you have to consider capital expenditures over time. If you have to replace a roof or HVAC or other high dollar expenditures, it is easier to put funds away for such expenditures if you have a lower payment on a 30 year mortgage. The decision really comes down to options and risk mitigation. A tighter cash flow margin carries more risk than a wider cash flow margin. A 30 year mortgage gives you more flexibility and options to mitigate risk than a 15 year mortgage.While no one can accurately predict the future, if you can set yourself up in a position to navigate the unknown by maximizing cash flow, that will be more beneficial for you.
- 1yJohn MorganPro MemberRental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
I did 15 year mortgages for my first 7 investment properties. My cash flow was weak due to it, but I could survive off my W2 just fine. My goal was to have them paid off a few years before I retire. I’m 8 years into this decision and still not sure if it was a good idea. lol. The other 13 loans are either 25 or 30 year loans which give me much more cash flow on these properties. And I’ve got 10 cheaper paid off houses which diversifies my strategy. So I’m all over the place. But I don’t think it’s a bad thing to do 15 year fixed mortgages if you’re a mom n pop investor and only want a few properties for some fun money. But if you want to scale up and create generational wealth, get long term 30 year fixed debt and leverage like there’s no tomorrow. You’ll be able to cash flow much more and take advantage of hedging against inflation long term.
- Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes1y
What is the cost of capital on the money youre borrowing, including the tax shield, and what is your expected risk-adjusted return if you deployed that money elsewhere? If the capital youre borrowing cost you 6.5-7.5%, but you're able to earn 10%+ with an acceptable risk profile, youre better off borrowing as much as you can for as long as you can. Equity in a property is cool, but you cant take equity to the grocery store and buy stuff with it.
Generally speaking, the rate improvements right now from a 30yr vs 15yr FRM dont really justify getting the 15yr. I would just get a 30yr and pay it on a 15yr amortization if you really want to pay it off early.
- 1yTheresa HarrisPro MemberMember since 2019 · 15k+ posts · 11k+ votes
I would get the 30 year mortgage and if you want to pay it down faster, you can. As others said, think about your future plans-do you want to buy another property (and have room to borrow more to buy one)? It also depends on interest rates and what you could do with the extra money-can you invest it and get more than what you'd save paying down your mortgage faster?
I'm getting closer to retirement and don't have room to borrow more, so I'm paying down my mortgages. That way I might be able to buy one more before I retire if I want (house prices where I am have gone up a lot and start in the mid $300K). Once I retire, I should be mortgage free on at least 3 rentals and can use that money for whatever I want.
Glad to see you're going to pursue multifamily. Good way to be able to scale.
Regarding 15 vs 30 year, one of my questions would be do you need the cash flow the property will generate because you will deplete your savings by putting 20% down?
Typically, low interest debt is good debt. Although rates aren't as low as they used to be, historically rates are still very low. The interest that will be paid is going to be paid by the tenants. With a fixed rate mortgage, your payment stays the same BUT you will be doing rent increases annually which may or may not add to cash flow depending on other expenses.
Don't forget RE investing is not all about cash flow. It is a great tax haven and that's one reason many people invest. You get to claim depreciation every year and hopefully the property is appreciating every year. Add that to cash flow, expenses you can deduct, etc and you have a profitable property.
Look at the big picture and what your goals are. You don't want to have too much equity sitting in a property that you can't access. AND....god forbid if there is another housing market crash and you have a bunch of equity in a property, it goes poof. If you only have a small amount of equity, there's less to make up. Keep your equity liquid - it also deters people from suing you. Just my two cents.
- 1yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
15 year mortgage costs you more. The cash flow you lose comes out of your pocket. The added interest per month you pay with a 15 year mortgage comes out of your pocket. The total added interest of a 30 year mortgage comes out of the rent. In other words, the tenant is paying it.
I get where you’re coming from Travis! Shorter term loans definitely save a ton on interest, but they can also tie up cash that could be used for reserves, repairs, or even picking up your next property. Some investors like to start with the 30-year for flexibility, then make extra principal payments when the cash flow allows. That way you still cut down the interest but don’t box yourself in if expenses pop up. How are you planning to balance cash flow vs. equity growth on this first one?
- 1yJoe VilleneuvePro MemberPlymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes15 year mortgages don't save money. they save total interest, but the interest is paid for by the tenant in the form of their rent. It also establishes a higher monthly payment, which comes out of your cash flow.
Quote from @Min Zhang:
I get where you’re coming from Travis! Shorter term loans definitely save a ton on interest, but they can also tie up cash that could be used for reserves, repairs, or even picking up your next property. Some investors like to start with the 30-year for flexibility, then make extra principal payments when the cash flow allows. That way you still cut down the interest but don’t box yourself in if expenses pop up. How are you planning to balance cash flow vs. equity growth on this first one?
30 year mortgages have lower monthly payments, and thus higher cash flow to you. The higher total interest, that the tenant is paying for you, is spread out over 15 more years.
Also, as Ned Carey stated more than once, you can always pay a 30 year mortgage faster by adding money each month to the principle. This means you can still pay off the property in 15 years, but since the interest is based on a 30 year mortgage, it's lower than if you started with a 15 year mortgage. All mortgages are front loaded with interest. The last 7 years of a 30 year mortgage, and the last 4 years of a 15 year mortgage is where you see the most money (in big chunks) going towards the principle.
I you want to pay off the property in 15 years, get a 30 year mortgage and make extra principle payments each month. This is how you save interest. Also, a 15 year payment establishes required payment higher than the 30 year. - Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Joe Villeneuve:
15 year mortgages don't save money. they save total interest, but the interest is paid for by the tenant in the form of their rent. It also establishes a higher monthly payment, which comes out of your cash flow.Quote from @Min Zhang:
I get where you’re coming from Travis! Shorter term loans definitely save a ton on interest, but they can also tie up cash that could be used for reserves, repairs, or even picking up your next property. Some investors like to start with the 30-year for flexibility, then make extra principal payments when the cash flow allows. That way you still cut down the interest but don’t box yourself in if expenses pop up. How are you planning to balance cash flow vs. equity growth on this first one?
30 year mortgages have lower monthly payments, and thus higher cash flow to you. The higher total interest, that the tenant is paying for you, is spread out over 15 more years.
Also, as Ned Carey stated more than once, you can always pay a 30 year mortgage faster by adding money each month to the principle. This means you can still pay off the property in 15 years, but since the interest is based on a 30 year mortgage, it's lower than if you started with a 15 year mortgage. All mortgages are front loaded with interest. The last 7 years of a 30 year mortgage, and the last 4 years of a 15 year mortgage is where you see the most money (in big chunks) going towards the principle.
I you want to pay off the property in 15 years, get a 30 year mortgage and make extra principle payments each month. This is how you save interest. Also, a 15 year payment establishes required payment higher than the 30 year.I think what people miss in this Joe is WHO is making those payments.
Without that fundamental comprehension of WHO is making the payment, everything else is lost, a person can't see it if looking through brick glasses.
People need to understand that for a property operating for tenancy: 1st the tenants pay for everything and 2nd you the landlord pay for any gap coverage. AND/or get to keep any overages.
Once a person get's this fundamental comprehension it's actually a question of do they want to be patient for tenants to pay down/off a property OR do they want to make a commitment of ongoing added capitol investments to achieve that sooner asset being free & clear.
Personally, I'd rather use my investment capitol to secure more investments. Not to throw into a low interest savings account. because that's what your effectively doing, transferring that $ from being liquid capitol into equity, that's it. And as equity it only grows at the rate the asset appreciates.
It seems crazy to expect equity to appreciate at 9%+ annually. But I can rather easily achieve that with liquid capitol.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
Already said but I will put it another way
A 15 year mortgage is only 15 years or less
a 30 year mortgage can be a 25 year, 20 year 15 year or any other length by paying a little more.
Do you want to be locked into a higher payment or have the flexibility to pay more?
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
Ha ha. Many interesting answers here - as always on BP. Really these answers are PERSONAL - in other words it’s impossible to answer without knowing your risk/reward tradeoff, your personal financial situation, your anticipated income and expenditures for the future, etc, etc,.
Most quotes I’ve seen offer a lower interest rate for a 15 year mortgage. So in terms of absolute cost the 15 year will be less costly. Because the monthly payment will be larger the after mortgage payment cash flow will be less with a 15 year mortgage, despite the fact that the amount of interest paid will be less due to the lower rate and faster amortization.
Another part of the equation is the ROI that you can invest the additional cash flow at.
Any advice anyone gives is based on THEIR risk/return criteria, not yours.
Here’s mine. I like 15 year because I can envision owning the property free and clear with significant asset value and significant cash flow in 15 years, while I have trouble envisioning 30 years. Not very “scientific” but that’s just the way I think. On the other side I’d want to accumulate an “emergency” fund asap to have the most important asset a real estate investor can have during a downturn - staying power. So these two are pulling me in opposite directions.
Should you not be able to make a clear decision based on all the “information” we posters have postered, you can always do what I as a professional real estate investor, syndicator and fund manager has done - flip a coin.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Quote from @Don Konipol:
Ha ha. Many interesting answers here - as always on BP. Really these answers are PERSONAL - in other words it’s impossible to answer without knowing your risk/reward tradeoff, your personal financial situation, your anticipated income and expenditures for the future, etc, etc,.
Most quotes I’ve seen offer a lower interest rate for a 15 year mortgage. So in terms of absolute cost the 15 year will be less costly. Because the monthly payment will be larger the after mortgage payment cash flow will be less with a 15 year mortgage, despite the fact that the amount of interest paid will be less due to the lower rate and faster amortization.
Another part of the equation is the ROI that you can invest the additional cash flow at.
Any advice anyone gives is based on THEIR risk/return criteria, not yours.
Here’s mine. I like 15 year because I can envision owning the property free and clear with significant asset value and significant cash flow in 15 years, while I have trouble envisioning 30 years. Not very “scientific” but that’s just the way I think. On the other side I’d want to accumulate an “emergency” fund asap to have the most important asset a real estate investor can have during a downturn - staying power. So these two are pulling me in opposite directions.
Should you not be able to make a clear decision based on all the “information” we posters have postered, you can always do what I as a professional real estate investor, syndicator and fund manager has done - flip a coin.
It's actually a math thing Don.
If you get a 30yr mortgage, and make payment's on it of a 15yr mortgage, you'll have the property paid off in something like 12/13yrs.
Because 100% of your over-payment goes to principle.
It slaughters down the amortization curve.
This also works because the difference in interest charge from 15 to 30 is so minimal a change.
Todays 30yr fixed is 6.73, a 15yr fixed is 5.94.......
The math is clear, get the 30, make payments on it as if it were a 15, have it paid off in 12-13.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes1y
@Don Konipol wrote "you can always do what I as a professional real estate investor, syndicator and fund manager has done - flip a coin."
This is incredibly wise advice. no one can predict the future. If a question is so close there is no clear right answer then flipping a coin is a totally valid way to decide. Making decisions quickly is sometimes just as important as making the right decision.
- 1yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesI KNEW Ned would get it LOL
Quote from @Ned Carey:
@Don Konipol wrote "you can always do what I as a professional real estate investor, syndicator and fund manager has done - flip a coin."
This is incredibly wise advice. no one can predict the future. If a question is so close there is no clear right answer then flipping a coin is a totally valid way to decide. Making decisions quickly is sometimes just as important as making the right decision.
Investors can get “paralyzed” and not move forward because they don’t have “perfect” information, or because they can’t decide between 2 “good” choices. Concentrate on the stuff that makes a big difference FIRST; you can “fine tune” and “optimize” later.
classic scenario......person takes out 15 year and has trouble making his payments because of unexpected whatever, ends up doing a refi for a 30 yr to lower his payments. Origination fees wasted. Always 30 yr, pay more principal if you want to.
- Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes1y
I will consider a 15 if the rate is at least .6% less than a 30.
I posted something similar a few months ago and got many good replies. 1. Most think the current difference of 15 yr and 30yr is not large enough to go for 15 yr. 2. If your goal is to grow really big in RE, most people suggest 30 yr. 3. They also mentioned about refinance in a couple years, etc.
- Shawnee Mission, KS · Member since 2016 · 719 posts · 313 votes1y
I had had a 10 year on my own house ,buying rentals I go with 30 gives my flexibility then I pay them off early .
- 1yBasit SiddiqiBusiness MemberAccountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
I think it depends on where you are in your investment journey and if you need to cash-flow to float your investment / day to day life.
If you need the extra cash, do the 30 year. If you like the peace and tranquility of a paid off house, go with the 15 year mortgage.
I personally got 30 year mortgages in the start of my investment journey 7 years ago. However, I will look into getting 15 year mortgages going forward.
One thing I noticed, and maybe I was looking at it incorrectly, when I was comparing the 15 year and 30 year mortgages a while back, yes, the interest rates were lower on the 15 year but I noticed the closing costs were higher for a 15 year. I am not sure why this would be the case but something I recall when comparing them years ago.
Basit Siddiqi CPA4.979 Reviews - Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes1y
Question: Do you plan on buying more rentals? If so, typically you go with 30 year so that you cash flow more and lower DTI, which will help in expanding your portfolio.
If you don't plan on expanding and just want to focus on what you have, then you can consider a 15 year.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes1y
Holly-cow, I am really getting to love-Love-LOVE my ai......
So, I built out a script for this debate and ran it through my ai to sort out the answers. It took me 10X longer to create the script than it took ai to sort the answer, lol.
In the scenario a $350k purchase, 20% down, and using the current mortgage interest rates on a 30yr and 15yr, how's it come out end of day if willing to make the payments of a 15yr mortgage.
On the 15yr, 5.85%, paid off at 15yrs, total interest paid $140,879.60
On the 30yr, 6.57%, paid off at 13.92 years, total interest paid $130,492.77
I would say that's rather conclusive proof that 15yr mortgages have 0 benefit.
They cost more in interest, they take longer to pay-off, more pressure on capitol because your locked into those payments vs a lower payment commitment and the option to pay the more.
- 1yScott AllenBusiness MemberReal Estate Agent · Columbus, OH · Member since 2020 · 449 posts · 471 votes
@Travis Blake Personally, I would do a 30 year. Your PITI will be less per month so that you can hopefully cashflow. With a 30 year, You always have the option to apply more capital each month or at any time towards your principal if you're looking to pay the loan off quicker. Whereas. when you have a 15 year, your PITI is just higher and it's not something you can change as easily.
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