Hello I just want to see if they would chime in on doing a 15 year loan vs 30 year loan. My original plan would be to do a 15 year loan with goals to pay off within 10 years, but from a few threads I been reading online I get the feeling a lot of investors hold for cashflow and appreciation and then sell before the loans are paid off. I do not sure if I am analizying this correctly.
I prefer the longest term loan possible. Reducing your monthly debt service by any amount flows directly to cash flow. If you apply that additional cash flow from the debt service savings to the principle amount every month you would be surprised at the time it takes to pay it off. Why tie your self down to the higher payment if you don't have to.
Check it out dinkytown.com. They have tons of calculators, not just mortgage related.
Here's a few:
thats what I have been seeing now that I looked up the 15 vs 30 keywords, but thanks for the comment and links greatly appreciated
It comes down to a matter of personal preference and your own individual goals and comfort level.
You'll get a little better APR with the 15 yr, but if you're going to pay it off early anyway you could always get the 30 yr and just make extra principal payments. The advantage to the 30 yr would be that you would also have the option of making a much lower payment (i.e. the regular monthly payment) if you ever wanted/needed to. Additionally, if you plan on applying for other additional loans down the road than it'd be easier to qualify with the lower 30 yr payment than the higher 15 yr payment (which would increase your DTI).
If a 15 year loan and 30 year loan have the same interest rate and charges, I would pick the 30 year one. But, that is usually not the case. You have to compare the entire loan programs to each other and also account if you are going to sell the property.
Having said that, I prefer the longest term possible since I can always prepay and shorten the length of the loan.
@Lorenzo Gonzales, all of the advice you have gotten is valid. I only use 15 year loans because I see no reason to pay the bank so much interest. On a $100K loan for 30 years at 4.5% interest your payments are $506.69 per month. Your first payment is $375 interest and $131.69 in interest. It takes 176 payments (almost 15 years) until you are paying more principal than interest in your monthly payment. Your total interest paid will be $82,404.57 Same note on a 15 year loan and your payment is $764.99 with your first payment being $375 interest and $389.99 in principal. Your total interest paid will $37,699.05 for the entire loan. Why would you want to pay $45K more on a loan than you need to? True it will not cash flow as well. If you need the money to live on I guess I could see it, but if you make enough from your day job to live on why not pay it down sooner? You are paying $258 more per month. I am well into my 50s so it makes no sense for me to buy houses with 30 year loans. Use your equity as a savings account. If you get it paid down to 50% and see another property you like and have no money for down payment then you can use the property to secure the down payment or refinance it. I try not to refinance unless I have to, I will sometimes roll the loans into one, but I prefer the 2nd property to make its own way. just my 2 cents. Good luck any way you do it.
Yes I am now thinking that my original plan to go with a 30 year loan would more sense.
thank you for your responses.
awesome advice! I was thinking of properties under a certain dollar amount to do a 15 year loan. For instance This first property that I am going to be purchasing is around 225k I am planning on doing a 30 year. I want to pursue a few more properties in the coming 2-3 years under 120k and go for 15 years loans. Myself just turned 26 so I can get a few properties under 120k and do 15 year loans and fig have them all paid by my early 40s.
Find a balance between the amount you pay in principle and interest. I like paying interest because it is a tax write off. I like paying principle because it is like a saving account... but not a write off.
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