20 year vs 30 year mortgage

[Brett Schmidt]

Hello all, this is my first post, and I am looking forward to learning from everyone. I am new to real estate investing and have already learned so much from this site and everyone on it. You all have actually a huge motivation for me. It is an honor to even be here!

I am not sure what info I can provide to assist in my question but essentially I am trying to decide between 2 mortgage options for a new rental property. 30 year w/ 25% down and 6k in closing or 20 year w/ 15% down and 4K in closing. Purchase price is 110k and interest rates are the same.

With both options the property will cash flow. Obviously the 30 year will cash flow better from a monthly standpoint; however, I will be saving roughly 12k in down payment and closing costs going with the 20 year loan. It would take roughly 6 years for the 30 year loan to make up that 12k.  

I have been researching this extensively and I have not found a scenario like this, but please point me in the correct direction if I have overlooked something. Based on my research, it seems the majority recommend 30 year mortgages based on the fact you can immediately reinvest the additional cash flow. I’m this scenario though, I will actually have more money through the first 6 years with the 20 year mortgage to invest. I feel I have to be overlooking something right in front of me but I’m struggling on deciding if the 20 year is worth it based on the additional  immediate funds I will have access to or if I should play a longer game with the 30 year. I greatly appreciate any help or advice!

[Brad Hammond]

Hey @Brett Schmidt, that's interesting, I haven't heard of a 20-year loan program like that.  This is going to be a personal decision that you are going to have to make yourself, however, I agree with you.  I think the 30-year loan is the better option if you are going to hold this property for 10 years or more.  Locking in as much debt as you can at these rates is going to be a BIG deal in 10 years.  Also, one of the hardest parts of investing in having the funds for your next purchase.  Since you can save half of a down payment, I would encourage you to do that.