As a real estate investor, you’ll have to take out mortgages. The hardest part of this (besides paying them off!) is deciding which mortgage option to go with. Is a 15-year mortgage best so that you can pay it off more quickly and save on interest? Or should you go for a longer mortgage period and pay less each month?
To find out the best course of action for your individual situation, look at the following statements and see what applies to you. As you read through, you might notice a pattern.
If you want to qualify for multiple properties and build a portfolio quickly, get a 30-year mortgage.
Since banks take your monthly recurring debt into account when deciding whether to let you borrow more, you might not be able to qualify for new properties if you have a high monthly payment. For this reason, a 30-year mortgage is great for those who want to invest in multiple properties and build up their portfolios.
If you want more cashflow that you can reinvest, get a 30-year mortgage.
Even though many people believe a 15-year mortgage will save you money, that might not be the case. If you have lower monthly expenses, you have more cashflow. If you make the minimum payments on the 30-year and reinvest the remainder, you can end up with far more wealth than you would have if you had gone with a higher monthly mortgage payment because you’re reinvesting that extra monthly cashflow over time instead of waiting until the mortgage is paid off to free up and reinvest cash.
If you want flexibility when it comes to the amount you’ll pay, get a 30-year mortgage.
You can pay more on a 30-year mortgage, but you can’t pay less on a 15-year mortgage! That flexibility will allow you to pay more when you have the money available or pay the minimum when you’re short on cash.
If you want safety in case of a medical emergency, job loss, etc., get a 30-year mortgage.
A 30-year mortgage provides more security. If you have a major life change that affects your finances, the bank will still need its monthly payment. With a lower monthly mortgage payment, you have a better chance of being able to afford it even if something goes wrong.
If you are retiring soon, get a 30-year mortgage.
Surprisingly, a 30-year mortgage still isn’t a bad idea for those who want to retire soon. First of all, you can always treat the 30-year mortgage like a shorter loan by putting more money into it early on and attempting to pay it off before retirement. Or, instead of trying to pay it all off prior to retirement, you could use that extra money to put into 401(s) and IRAs until you retire. Then (depending on your situation) you should have plenty of cash flow even after you’ve stopped working. After you’ve retired, you can use the payment as a mortgage–interest tax deduction, which can be valuable and hard to come by in your later years.