15yr mortgage vs. 30yr mortgage with a 1.5% interest difference

[Debra Lane]

I'm in negotiations to purchase a duplex as an investment. Would it be better to finance the property for 15 yrs at 2.75% or for 30 yrs at 4.25%? The loan will be around 75K. I wouldn't normally consider the 15 yr, but with such a difference in interest rate, it seems like I should consider it. Also, I have the ability to pay the loan off early in either scenario.

[Mike McKinzie]

The 15 year payment will be $140.02 more per month, $508.97 vs $368.95. Personally, I like the 30 year note and pay more each month to pay it off sooner. Unless you have large reserves or other income, the flexibility of making a lower payment during those months of high expenses is worth the extra interest. If you make the 15 year payment, every month, on the 30 year loan, the loan pays off in 17 years, 3 months. And, if you can double the 30 year payment, the loan pays off in 10 years, 6 months. For me, I prefer the flexibility over the lower interest rate.