15 Vs 30 Year Mortgage

[Dave Rosa]

First, I'm kind of new around here, is there a search bar I haven't found? I'm sure this question has been asked 100+ times..

 We have one Short term rental property right now with a 30 year mortgage. Looking to buy another property in January or February for long term rental and thinking about a 15 year mortgage. The property we're looking at would still cash flow, only looking at a $55k mortgage after down payment estimated an extra $134 a month in mortgage payment to save $35k in interest. Seems like a no brainer, any arguments against doing a 15 year on a property that still cash flows?

Thank you for any responses.. Merry Christmas!

Dave

[Bob Daniels]

The general consensus is that the 30yr option is the better route to go if you are trying to grow your business as it gives you more cashflow to continue to purchase your second, third, fourth etc property.  If you want free and clear properties, you can always pay your 30yr loan off faster and pay it like a 15yr loan, but you can't pay your 15yr loan as if it were a 30yr.  This gives you the option to not have nearly as high of a payment should you ever hit a rough spot financially.  

Also you aren't really "saving" 35k by paying it off faster due to the time value concept of money.  To put it simply a dollar is not always a dollar.  A dollar today is worth more than a dollar 10yrs from now, which is worth more than a dollar 30 years from now.  

Since you are paying a 15yr mortgage off faster, you are using more "today dollars", as opposed to a 30yr mortgage which uses more "tomorrow dollars".  Due to inflation if you owed $1000/month, 30 years from now that would only be the equivalent of $411 worth of actual purchasing power if you assume a 3% rate of inflation.

Finally, paying off a loan faster essentially means your money is earning the rate of interest on the mortgage. If you had 10k in cash, would you pay down a loan with a 4-5% interest rate, or would you invest that 10k towards your next deal? Most people would invest it in their next deal as they can earn significantly higher ROI than a meage 5% interest payment savings.