How do I run these numbers on a 15 year vs 30 year mortgage?

[Paul E. Drecksler]

Can you help me with this math problem?

$425,000 sale price.

$85,000 down payment (20%).

30 year fixed at 3.675% vs 15 year at 3.15%.

Difference in cash flow / monthly payment would be $809/month on a 30 year, which I could put right back into the property to pay off the principal faster. How long until I pay off the loan on a 30 year doing that, and how much interest do I save? Is there a spreadsheet or calculator that can help me run these numbers?

Background of this question: 

I'm considering a 15 year vs a 30 year mortgage on an investment property. It's a buy and hold rental. If I do a 15 year, I'd save $187k in interest on the loan but the payment would be $809/month higher. 

A 30 year mortgage provides more monthly cash flow that I could turn into other investments. Or I could just use the extra cash flow to pay off the principal faster, but at least I'd have the option with a 30 year if I needed the cash flow at some point, which I wouldn't have with the 15 year. 

So there's pros and cons to either and my particular scenario and objectives will determine what's best for me. However at the moment, I just want to run the numbers to see what the difference in total interest payout would be on a 15 year vs using the same difference in cash flow on a 30 year to pay off the principal faster. How do I run those number? Thanks for any help.

[Chris Mason]

Hi Paul,

Most REI use the longest term available, which is typically 30 years.

Another factor to consider is the next mortgage. Your DTI is calculated based on the minimum required payment, which will of course be way higher on a 15YF than a 30YF. It doesn't take a lot of cash flow negative properties to render one unable to obtain any future mortgages.

Taking your interest rates at face value...

If you wanted to pay the 30YF off in 15 years, the P&I would be $2459/mo, even though the minimum required payment by the lender will be way less. You're paying extra here to get the 30YF nuked in 15 years.

A 'true' 15 year loan at the interest rate you mentioned would be $2372/mo.

So it's $87/mo extra to have the nicer DTI and still pay it off in 15 years. And on that rough month, when you're in between tenants, or have a big capex come up, you could just drop to making the minimum payment.