15 vs. 30 year mortgage?

13 Replies

Hi Everyone,

My wife and I currently have our primary residence and our investment property on a 15 year note, and I love the fact that we'll be paying it off much sooner, WITH a substantially lower rate. However, as we are shopping for a second investment property, I'm wondering whether or not it makes sense to do so again? Running some very broad numbers are showing me approximately $450 between the two each month. Should I look more at positive cash flow (30 yr. mortgage) or try and pay it off with a 15 yr note?

Thanks in advance from this new investor from Dallas/Fort Worth, TX!

JA

I am personally a fan of the shorter term. Even if you have a lower monthly income, look at the difference in total interest paid! If you have a W-2 job and don't have to depend on this for your income, why pay the monies to the bank?

Thanks Ian, you're right on the money re: total interest paid- it's astounding! Since this property will be a rental, I'm trying to make sure that I'll have at least a LITTLE bit of cash flow each month.

JA

@Jeff Ausdemore I believe that the only one who can answer this question is you and your wife. I'm sure many people are going to chime in and give you good and bad scenarios for both, however; it doe ends on your goals and philosophies. Good luck.

I prefer the 30 year.  You can always pay additional principal to shorten the loan and pay less interest.  However when those times when you have vacancies, the less payment amounts help.

I personally am a  cash flow investor.   I also like leverage.  I'll take as much cash flow as I can get out of a deal, and not worry about the length of the note because....I'll also use OPM for as long as I possibly can (especially at today's low rates), while my own cash goes into other deals. 

I read somewhere that it depends on WHAT you are going to do with the extra money. If you are just going to save that $450 in the bank and not invest it anywhere, you are probably better off using it on the 15 year/loan. If you are saving it up to buy ANOTHER rental property or investment, it could be a better idea to get the 30 year loan. It also depends on the difference rates... if it is 1% difference or a lot more.

I have personally taken a 15 year on my primary residence (2.75%... free money almost!!), but it is a live in reno and we are almost finished and going to sell it and move to another state. I am very happy with the 15 year, we have paid 20% of the loan off in just 2 years already.

30 yr. One can always pay a 30yr like a 15 yr. one can never pay a 15 yr like a 30yr.
Originally posted by Account Closed:
30 yr. One can always pay a 30yr like a 15 yr. one can never pay a 15 yr like a 30yr.

 Using that logic a 30 year loan is always better then a 15 year, which IMO is not the case. Interest is the main factor to get the 15 year loan over the 30 year and the lower payment is the reason to get the 30 year.

I agree with many of points already made but will add one more to consider. Do you want to buy more rentals in the future? How is your debt to income? I made the mistake of taking out my primary and 1st rental on 15 year mortgages. This increased my DTI ratio and made more difficult to get next loan. Since that time always do 30 year and gladly pay the extra 1/4% for the flexibility. I do pay most on 15 year schedule still

Wow- some outstanding points to consider here. 

I think that we've thought things through, and given the above experiences people have shared with us, we're definitely leaning towards a 30 yr note going forward, mostly due to the flexibility and DTI ratio it favors.

Thanks again, everyone- this is another reason I love BP so much. Where else can you ask for help, and minutes later gain the perspective of a dozen experienced professionals weigh in to offer insight? 

JA

Originally posted by @Andrew Meyer :
Originally posted by @Seth Sherman:
30 yr. One can always pay a 30yr like a 15 yr. one can never pay a 15 yr like a 30yr.

 Using that logic a 30 year loan is always better then a 15 year, which IMO is not the case. Interest is the main factor to get the 15 year loan over the 30 year and the lower payment is the reason to get the 30 year.

it is always better, in my opinion. interest rate differences between the two can be neutralized with different prepayments. no flexibility in a 15 yr.

Another cool reality to think about with mortgages is what I've heard as, inflation induced debt destruction. Inflation seems to be cooked into the books by our government from the amount of spending that goes on. The government loves inflation because of the ability to pay down that debt with inflated dollars in the future. I believe having a 30 year fixed rate mortgage is better because of higher cashflow and the debt pay down with inflated dollars by the tenant. 

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