Ellis, I don't know you, and I don't mean to come off strong. But I think you have simplified my position, so I want to lay it out in a little more depth, and provide additional elaboration.
If I have a choice between paying someone one dollar, and receiving thirty percent back in a tax deduction, or, paying some one one dollar, deducting sixty percent of it as a business operating expense, and keeping the dollar of net-worth afterwards, I will chose the later. I own a duoplex, where I live in a two bedroom side, and rent out the three bedroom side, and so I understand I will be able to deduct sixty percent of my principle as an operating expense.
Choosing the fifteen year option will allow me to build up equity quicker, so that after less than three and a half years, I will have the over twenty percent equity I will need to refinance into a conventional mortgage, and then can use another FHA owner occupied mortgage to buy another property. The fifteen year mortgage pushes me toward that goal much quicker than the thirty.
It will increase my net-worth quicker, which may not be a goal for everyone, but for me, someone who is in their mid-twenties, creating a larger net worth is an important goal of mine.
I do not have to keep the property without ever refinancing. I am planning on being a buy and hold investor, but I could at a later point, after a certain percentage is paid off, to refinance, and continue to refinance regularly, just at the lower interest rate that comes with a fifteen percent loan. Gary Keller, in his book Millionaire Real Estate Investor, recommends that approach, with regular refinancing to twenty five- to thirty percent down, fifteen year loans, because that is the way to get best interest rate, and achieve strong long term returns.
The last, and perhaps most important point is harder to make, because it is very hard to quantify, but it has to due with risk. There is a large difference in risk for a fifteen year versus a thirty year mortgage. When you build up equity, you are more vulnerable to ending up with negative equity if the economy turns south, or the possibility of negative equity when trying to sell the property, if you need liquid cash. I am very hopeful we are not going in that direction. But because the Fed's loose monetary policy, and the country running a large deficit using debt, there is a chance we are seeing a bubble. Partially mitigating that risk by building up equity, is both a personal preference, and, form where I sit, a careful financial choice. It is tricky, because I cannot quantify it. But I strongly believe, after my personal subjective look at the national climate, that right now, is a time to prudently limit risk.
I hope I did not bore you or come across too strong. One of my best friends takes the other side, and I am open to being persuaded. I am only twenty-six, and I am open to being persuaded. I am here because I want to learn, and become stronger.
But I think my reasons come from the analysis above, and I want to be clear that though my analysis subjective, as opposed to objective, I have studied this, and my perspective comes not just from personal preference, but subjective analysis.
