This is just a quick article on my opinion of whether you should decide for a 15 or 30 year mortgage when you go to acquire a new property. In my opinion, 30 year wins every time. This obviously depends on your goals, but if your goal is to acquire the greatest amount of wealth in the shortest amount of time, then 30 year mortgages should be the go to.
My main reason for deciding on 30 year mortgages is that you aren’t locked in at the higher monthly payment. Stuff happens, and you never know what unexpected expenses you might find yourself incurring. If you take out a 15 year mortgage, you are still responsible for paying that amount or else your bank will foreclose on you. With a 30 year mortgage, you are only obligated to pay the smaller monthly payment. This gives you much greater flexibility.
Now yes you will get a lower interest rate and have your house paid off faster with the 15 year mortgage compared to the 30 year. But you can actually pay your house off just as fast if you did decide to pay extra towards the principle every month while having the 30 year loan. I like this because you aren’t obligated to pay the higher amount but you very well can if you are in the position to do so. Then if something unexpected pops up and you need to use your money for that, you can just pay the lower amount for a little while until you are able to go back to paying the extra payments.
Another positive for the 30 year mortgage is that if the subject property is being rented out, the tenants are paying it off for you anyhow! You will also get better cash flow, resulting in better cash on cash return for the property. You can then reinvest this cash flow into other income producing real estate or put it in an index fund or something else along those lines. The return you will get on that money will more than likely be better than the interest you are saving from deciding on the 15 year mortgage over the 30 year one.
Another disadvantage of the 15 year mortgage is that if you go to a bank to inquire about getting a loan for another property, that higher monthly payment will increase your monthly debt obligations. This will make your Debt-to-Income (DTI) ratio less favorable for helping you acquire another property. If you opted for the 30 year mortgage, that monthly debt obligation would be lower, making you a more favorable borrower.
I would say the only case for the 15 year mortgage would be if you are the kind of person that does not want much debt to their name, or you have a certain goal like having a property paid off by the time you retire. Some people don’t have the willpower on their own to contribute the extra money every month towards the payment unless they know they have to. Having a 15 year mortgage could make sense in that scenario as a type of forced savings.
So there you have it, my case for the 30 year mortgage over the 15 year. What do the rest of y’all think? I would love to know your thoughts.