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Old 04-13-2015, 12:19 PM
 
3 posts, read 2,225 times
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I'm trying to find out for investment property, is it better to take a 15yr fixed or 30yr fixed mortgage loan?
The loan amount should be around $200k, we don't have any outstanding debt ( both me and hubby's credit scores are in the 800). Our agent recommends 30yr because the payment is lower, but I disagree. Paying more to interest for longer terms doesn't sounds very appealing to me. Anyone have experience being a home investor can shed some lights on this would be greatly appreciated...
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Old 04-13-2015, 12:28 PM
 
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Agreed.. You don't need to be a home investor to figure out that on a 15 year loan with a lower interest rate, you will end up paying lot less interest and accumulating equity at a higher rate. With the rent from the property and your income, will you be able to comfortable pay the monthly payment and meet your expenses(don't forget the potential maintenance costs from the new property) and goals? That's the question you need to answer.
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Old 04-13-2015, 12:30 PM
 
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If you can afford to make payments for a 15 yr term, then go for it. You should also consider times when the property is not generating any rent and figure if you could make the extra payment that a 15 yr loan would require.....Nobody can tell you exactly whats good for you...:-)
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Old 04-13-2015, 12:32 PM
 
Location: North Texas
23,618 posts, read 31,198,912 times
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I refi'd 2 years ago from a 30 year 5.5% loan into a 15 year 2.75% loan. My monthly payments went up by less than $200 on a property I bought for less than $200k.

Go for it if you can swing it!
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Old 04-13-2015, 12:41 PM
 
Location: NYC area
495 posts, read 377,239 times
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As the other poster said, just make sure you can make the 15 year term payment if/when the unit is unoccupied. I still own a house in Texas that I've been renting for the last two years. I just had a tenant move out and subsequently had a water heater leak when the house was unoccupied--and it caused quite a bit of water damage. So now, I can't rent it out for the remainder of April and maybe not even the month of May because I need it empty so I can get the insurance adjuster in, have contractors get in and repair the extensive damage, etc.

So we are having to make double mortgage payments while the rental is unoccupied. As long as you have cash in the bank for these circumstances, you may as well go for the lowest interest rate.
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Old 04-13-2015, 12:58 PM
 
Location: Dallas, TX
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Shorter term with lower rate should be a no-brainer.

But it's really all about trying to match cash flows: (mortgage payment + other rental expenses) vs. rental income. There are some situations where the 30-year may make more sense:

1) You're relying on the rental property as a source of income (rather than an investment). In that case, you likely want to maximize the net positive cash flow by reducing the payment.
2) The rental income isn't going to be enough to cover the expenses with a 15-year mortgage. You'd then have negative cash flow throughout the mortgage, which could cramp your living style, especially if you end up with some unrented months down the line. (If you HAVE to use a 30-year to make the numbers work, this is also a sign that this may not be a good rental property, but that's another topic.)
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Old 04-13-2015, 01:50 PM
 
206 posts, read 245,871 times
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Default 30 Years

You all are right, but I have a different take on this. Interest rate being this low, it would be better to lock in the low rate, which is currently in line if not lower than inflation, which is free money. Why would you want to lock yourself up with higher payments? Like others state, there will unexpected expenses along the way, not just PITI. Right now, in one of my rentals the a/c has to be replaced, but I have the cash reserves.

If you are disciplined enough, take the 30 years and keep paying the 15 year monthly payment amount extra towards principal. If you are diligent enough, you will pay off the mortgage in less than 16 years. Check any amortization calculator like the one on bankrate.

Also after 15 years the monthly payment you are making today will be lot cheaper. To explain it better, we had been in our current home 15 years to this month, April 2000. Most of our friends bought bigger homes back then, took a 15 year mortgage and paid it off diligently. We took a 15 year mortgage, was not disciplined to pay extra so the mortgage is still not paid off. But some of my friends have paid it off and sitting on the equity doing nothing. We did not pay off but saved, invested diligently, bought rentals, but still paying the mortgage which is lot less than a single bedroom apartment rent in our area.

Also if I remember correctly, back then the 30 years rate was 8.5% and 15 years was 8.0%

I could be wrong, but never regret.
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Old 04-14-2015, 09:36 AM
 
12,404 posts, read 9,221,478 times
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Quote:
Originally Posted by MusicHouse View Post
I'm trying to find out for investment property, is it better to take a 15yr fixed or 30yr fixed mortgage loan?
The loan amount should be around $200k, we don't have any outstanding debt ( both me and hubby's credit scores are in the 800). Our agent recommends 30yr because the payment is lower, but I disagree. Paying more to interest for longer terms doesn't sounds very appealing to me. Anyone have experience being a home investor can shed some lights on this would be greatly appreciated...
If you wouldn't mind coming out of pocket a bit (or a bit more) each month, 15yr is OK.
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Old 04-14-2015, 09:41 AM
 
12,404 posts, read 9,221,478 times
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Quote:
Originally Posted by shrapr View Post
You all are right, but I have a different take on this. Interest rate being this low, it would be better to lock in the low rate, which is currently in line if not lower than inflation, which is free money. Why would you want to lock yourself up with higher payments? Like others state, there will unexpected expenses along the way, not just PITI. Right now, in one of my rentals the a/c has to be replaced, but I have the cash reserves.

If you are disciplined enough, take the 30 years and keep paying the 15 year monthly payment amount extra towards principal. If you are diligent enough, you will pay off the mortgage in less than 16 years. Check any amortization calculator like the one on bankrate.

Also after 15 years the monthly payment you are making today will be lot cheaper.
This does not justify paying a higher rate over a lower one. Do the math again. Even if inflation went to 20% annual you will never, ever come out ahead with a high-interest note over a low one, given the same payment each month.

Quote:
Originally Posted by shrapr View Post
To explain it better, we had been in our current home 15 years to this month, April 2000. Most of our friends bought bigger homes back then, took a 15 year mortgage and paid it off diligently. We took a 15 year mortgage, was not disciplined to pay extra so the mortgage is still not paid off. But some of my friends have paid it off and sitting on the equity doing nothing.
Doing nothing? No - it is saving you money on interest and, arguably, also allowing your other investments to be more aggressive, towards stocks instead of bonds, since you don't have to make payments each month.
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Old 04-14-2015, 09:43 AM
 
12,404 posts, read 9,221,478 times
Reputation: 8868
Quote:
Originally Posted by Big G View Post
Shorter term with lower rate should be a no-brainer.

But it's really all about trying to match cash flows: (mortgage payment + other rental expenses) vs. rental income. There are some situations where the 30-year may make more sense:

1) You're relying on the rental property as a source of income (rather than an investment). In that case, you likely want to maximize the net positive cash flow by reducing the payment.
2) The rental income isn't going to be enough to cover the expenses with a 15-year mortgage. You'd then have negative cash flow throughout the mortgage, which could cramp your living style, especially if you end up with some unrented months down the line. (If you HAVE to use a 30-year to make the numbers work, this is also a sign that this may not be a good rental property, but that's another topic.)
Why does everyone assume that paying out of pocket is bad, even if job income is very high?
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