15 vs 30 Year Mortgage for Investor

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15 vs 30 Year Mortgage for Investor

John Friendas

Member since 2024 · 44 posts · 26 votes

I have two options 6.625% 30 year or 6.15% 15 year

I want to invest aggressively in the near future on more properties

The loan is only $110k and the monthly payment for 15 year is $563 and $750

I will earn 2-3k a month in gross rental revenue

The property is in a declining population area

Recently rennovated, and all major things were relatively recently improved such as plumbing, the roof, a/c, electric, etc.

Will require a lot of management as it is rent by the room so I may switch to a normal rental after 10 years

I'm trying to find what will mathematically net me the most money in the long run. Considering opportunity cost of not affording more rentals vs paying much more in interest. I saw a lot of advice to do what feels comfortable but I feel like I want to find out which one will end with more net worth.

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Tim DelaneyPro Member
Buffalo, NY · Member since 2018 · 790 posts · 530 votes
1y
If your loan is $110K then the payment on the 15 year would be $927/month at 6.15%; 30 year option at 6.625% would be $690. If you want to grow aggressively then having the extra cash available to you today is more important. There are some very aggressive investors that refi into interest only products to free up even more cash in the short term - this can be much more risky though, so not recommended if you are not very experienced and have large reserves. The interest rate isn't that huge of a difference between the 15 and 30 so worst case scenario if you have the 30 year option is you start paying it down on a 15 year timeline - sure you'll pay a little more in interest over the 15 years, but it will have been worth it if you bought another house.
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Derek BrickleyBusiness Member
Lender · Ann Arbor, MI · Member since 2021 · 663 posts · 226 votes
1y
Hey John!
A genuine question here for you, who are you working with right now and how much are they charging you in fee?
The main reason I ask is because that is significantly below primary residence mortgage rates let alone any investment loans, if you can get rates like that I might need to make some changes on my end hahah
To answer your original question, assuming all else is equal long-term fixed rate debt is valuable. The rate might be .5% higher for the 30 year, but looking at it financially what if you took that $187/mo and invested it into the stock market at 7-9% returns? Well you'd actually be netting more in the long run by doing so compared to putting it towards the home. Maybe that allows you to afford more rentals in the future too.
A home (whether primary or investment) in my eyes is considered as a savings account once you own it - a store of wealth. Making additional payments or taking a shorter term are just depositing more into that savings account (it's not like the property appreciates more by paying down the loan). Plus by taking long-term debt you have more flexibility (emergency case here) of a couple hundred if you came into financial difficulty. I'm not a CPA or financial advisor, but just my 2 cents for what it's worth. Hope this helps!
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Benjamin AakerPro Member
Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
1y
I would have asked you what your long-term goal is but you have already thought about it. Good for you. Since you want to aggressively invest in the near future, you will need cash and the 30 year option is the right one for you. As you purchase more, your net worth will go up more quickly than the savings in interest with the other option. My recommendation would be different if you were a high-income earner or if you wanted steady equity growth.
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