low interest 15 year vs higher interest 30 year loan

[Juan C Osorio]

Hello fellow BPs.

I currently have a 15 year mort. @ 2.875 on a 285K loan on my primary home.  I am thinking about doing a cash-out, more less 100K, and going into a 30 year mort. @3.99.  I can afford my current payment and I could use the cash-out money but it is not necessary.

I will be using the money to invest in real estate; however, I would love to get your imput and whether this will be a good financial decision.

I have looked at a many of the posts regarding the 15 vs 30-year mortgages, but I have not found anything with this much spread on rates.

Any input will be truly appreciated and thanks in advance for posting.

Have a great day!

JC

  

[Tony Kim]

Originally posted by @Steve Vaughan:

When the spread or difference is greater than .5%, I take the 15.  I did a blog about how 'losing' $92/mo in CF will save me $180,000. My refi was in 2012 when 15 yr rates were sub 3% while  30s were 4% like you have now.

Yours will probably be the same way.  Bet this will cost you at least $180k (for no reason). Signing up for 360 payments is a big decision but may be ok for forever worker bees.  And I? I chose the path less travelled by. 

Well, if you consider "cost" as the extra interest payments that are made over the course of 30 years, his additional mortgage interest will be 210K, but he will have 100K cash in hand. Obviously, it doesn't take a genius to figure out that you'll pay less total interest on a 15 year mortgage than a 30 year mortgage....especially when you are adding 100K to the principal balance when refi-ing to the 30 year. 

But I can pretty much guarantee you that investing the 100k cash in hand will result in much larger profits than the 210K we are talking about after 15 years. Heck, it probably won't even take 15 years....I'll say 7 years, depending on how well it's invested. Plus, he'll be in a much better cash-flow position.

Also, keeping the 15 year mortgage and forgoing the opportunity to pull out 100K as seed money for your real estate investment portfolio is the true "forever worker bees" mentality. Trying to obtain financial independence by paying off your properties is chasing fool's gold. It should be done via strategic financing. Also, being satisfied with paying off your property in 15 years has very little appeal to me as my plan is to be financial independent much sooner than that (and that's assuming paying off your home is going to make you financially independent...which it probably won't). Refinancing and pulling out equity is one of the best tools a real estate investor can use. You will basically have 100K cash in hand and a DSCR that went down slightly because your payment would be going from $1,951 to around $1,835.