Do 40 year mortgages make more sense for Buy and Hold?

[Nader Hachem]

I've been seeing some recent news on 40-year mortgages. I'm not sure if they even apply to investment properties, but i'm going to assume they do. Would this actually make more sense for Investment properties? Especially in a high interest market? Will this make things easier to get into a first rental property?

Now, one of the biggest cash-flow killers is the high interest rates, i.e. - high monthly mortgage. Would 40-year mortgages make it easier to get into long-term investment properties? I'm speaking on lower cost properties around 150-250K. I know this will also prolong the loan and in the end you end up paying more total for the property. 

My thought is that 40 year will allow you to get into these properties easier, since payment is lower which in turn allows for cash flow.. then maybe down the line you could refinance into a shorter loan.

Just some thoughts, i'd like to hear others thoughts too.

[Joe Villeneuve]

If I could get a 100 year loan I would be the first one in line. This would reduce the monthly payment, as you stated, and increase your CF.  The interest is paid for by the tenant out of the rent, not you, so the increase in the total interest is a non-issue.  The paydown on a mortgage, whether it is a 15, 30 or 100 is back loaded,...meaning the mortgage payments are front loaded in the payments schedule.

Take the same property/loan, and run amortization tables for 15, 30 and 40, and you'll see how little of the actual principle is paid in the first years of a loan.  Look even farther down the years of these loans, and you'll see how long it take for the payoffs to accumulate to a number that really matters.

Equity accumulation from appreciation is much greater (it better be) on your properties than from the paydowns.  Your mortgage has nothing to do with your appreciation or your property value, and your appreciation has everything to do with property value.