15 Year or 30 Year Mortgage

[Devin Mills]

I am 24 years old and in contract on my first real estate deal which is a duplex in a B neighborhood where I will be occupying one side and renting the other.  Purchase price of the duplex is $185K and will need roughly 20K in repairs to get rents up to meet the 1% rule.  Anyway,  I am looking to find out whether I should go with a 15 year fixed (3.5%) or 30 year fixed (4.25%) mortgage.  I originally was going to go with the 30 year fixed however seeing all that interest in the first few years of monthly payments is killing me.  Why waste that money toward interest?  Is the fact that interest is tax deductible make this a little less painful and worth it to do a 30 year?  Do the majority of investors go with 15 or 30 year mortgages?  Wondering if most investors invest with 30 year mortgages and leverage their lower payment to buy other deals.  Any advice or experiences would be appreciated.

Thanks,

Devin

[Andrew Johnson]

@Devin Mills I'd go with the 30 year mortgage personally.  Mortgages are still at historically low rates and I'd bet a box of donuts they'll be higher in 15 years that they are today.  So you get a lower payment today and from years 16-30 (assuming you hold the property that long) you'll likely be locked into a below (then current) market rate.  Not to mention that since it's your first deal you really need to see how things progress for you during that first 12-24 months of ownership.  If there's no pre-payment penalty you can always pay the mortgage down quicker (later).  But, until that time, you have the flexibility of cash-flow.  And later in life (15+ years from now) you might like having some mortgage interest to write-off along with the depreciation against the income of the property.  You'll likely be in a higher tax bracket at 40 than 24 so the benefits will kick in then.  If you own the property free and clear at 40 then you'll either have to refinance at the market rate then (who knows what it will be) or face a heavier tax burden because you'll only have depreciation to write off as there wouldn't be a mortgage to generate mortgage interest.  Anyway, my two cents, food for thought, time will tell if my perspective is right or wrong.  Most of this is about taking an educated guess.