15 or 30 year mortgage?

Question

If I am trying to buy a single family home rental does it make sense to lower my cash flow in favor of a 15 year mortgage as opposed to a longer 30 year mortgage so that I can pay down the loan faster?

Nik Moushon · Answer

At the low rates you are getting today...no way would I go 15 yr mortgage on a SFH.

Steve Vaughan · Answer

If the 15 rate is .6% or greater less than the 30, I'll usually take the 15.  Sometimes it's an anomaly and 20% less so worth at least checking.

Most 30s have only paid down about 25% when a 15 ends.  I've never paid off a 15 and wished I still had 75% to go.  Most like their til death, I mean mortgage, to live up to its derivation.

Tom S. · Answer

@John Nawrocki  I would say personal preference and your finances, and what you can do with the extra money. 30 year and paying extra if you want is safer and many people do that.  Lots of options with the extra cashflow - invest more in your 401k, IRA, cash cushion, buy more property.  Again, depends a lot of your personal situation.

Kyle J. · Answer

There's not really one right answer to this question.  It depends on a variety of factors (i.e. where you are in your investing career, your personal investment goals, whether you intend to buy more rental properties, etc).

What I can tell you is, that if you intend to keep buying rental properties, you're usually better off going with a 30-yr mortgage.  For one, you can make extra payments on a 30-yr mortgage and pay it off early like a 15-yr mortgage, but you can't pay off a 15-yr mortgage like a 30-yr mortgage.  And the higher payments of a 15-yr mortgage could potentially hurt your DTI ratio if/when you decide to acquire more rental properties and need to qualify for additional mortgages.

Just something to think about.

John Nawrocki · Answer

Thanks everybody I really appreciate the feedback!

Joe Villeneuve · Answer

No.  If your tenant is doing this for you already...why help them.  You're not saving you money doing this.  You're spending more money.

Chris Teti · Answer

I just went through this scenario myself. I've been working with a financial advisor that specializes in maximizing cash flow. They recommend going to a 30 year to lower your monthly payment. This acts as a safety net in case something happens with your situation, you are committing to a lesser monthly payment. If you have the extra cash, you can always pay extra toward the principle and pay it off early. Also, if you take the difference that you save on a monthly basis by going with a 30 year vs a 15 year mortgage, and invest it, you should be able to get a better return than the 3-4% you would save on the mortgage, and do it in a way that would be more liquid that stuck in your house in case you need it.

Tony Kempisty · Answer

Mark Ferguson has a great YouTube video on this... I highly recommend watching it.

15 or 30 year mortgage?

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