My article on the topic of 15- vs 30-year mortgages that was posted on BiggerPockets.com (see below for the link) generated a great discussion in the comments section and even sparked n exchange about the strategies of mortgage recasting and also using a HELOC in first position, which I didn’t cover in the article itself.
But if you’re new to this debate, I’ll go ahead and tell you that there’s no single right answer, but it’s definitely an important question.
Let’s dive in…
So, for starters, you’re probably aware that you can get mortgages for different lengths of time, with 15-year and 30-year options being the most common although now we’re even starting to see 40-year loans on the marketplace.
As a real estate investor or just as a homeowner, both the 15- and 30-year loan options have advantages, but how do you know which one is the best choice for you?
First, know your goals
What are your goals for the property? And how does that fit into your overall goals for your life or for retirement?
For an investment property, are you wanting more income and cash flow to save more for your children’s college? A 30-year mortgage might be for you. Or would you rather build equity fast for your personal residence, so you can avoid paying a mortgage during your retirement? You may want a 15-year mortgage.
Plus, it’s a good idea to consider what payment you may or may not be able to afford in the future.
Consider possible life changes
Staying aware of possible life changes goes a long way regarding your finances and investment decisions.
For example, you can send a higher monthly payment for a 30-year mortgage. But you can’t send in the lower payment for a 15-year mortgage. That’s where flexibility comes into play.
Also, if, heaven forbid, something bad were to happen—such as job loss, a family issue, or a health problem—could you ensure that you and your family would still be able to afford the higher monthly payment? This is an important consideration, as are other ways to insure your investments or your nest egg (i.e. disability and life insurance).
But what if your goal is still to pay off the property sooner and save on interest?
Hey, you can always pay extra…
While you may not be able to get it down to exactly 15 years by making additional payments on a 30-year mortgage, you could still knock years off of the life of the loan.
For example, let’s say you were to sign up for biweekly mortgage payments. You would essentially be making 13 monthly payments—or 26 biweekly payments—instead of 12. That extra payment would go towards the principal of the loan, reducing both the loan balance and the amount interest charged over the life of loan.
For the rest of the discussion, here’s the original article on BiggerPockets:
https://www.biggerpockets.com/blog/mortgage-15-year-or-30
And remember to check out the Comments section on BP!
