15yr or 30 yr - Posted by Mike_NY

Posted by Mike_NY on November 06, 2002 at 13:09:04:

Thanks everyone, great advice. I’m going with the 15 year. The rate is fantastic. I agree with the 30 year/pay as fifteen, but I’m thinking that I may be too tempted to hold onto the extras even when it’s not tight.

It will CF without the extra garage/office income. I already have bite on that. The goal is to squash it to a free and clear. Great neighborhood. Great price.

Thanks again.

15yr or 30 yr - Posted by Mike_NY

Posted by Mike_NY on November 05, 2002 at 17:22:39:

I have a property under contract for 385,000. Under a special situation I received it for well below market. Don’t ask please. FMV between 410-470. I can’t flip because its a family thing so… I’m holding.

Anyway, I have received two offer as far as financing from my bank. Both 10% down…15yr @5.5% and 30yr @6.2.

It’s a two family both with 2 bedrooms and one studio (three room apt down stairs). There is also a lot with a garage and an office. One unit is rented now for 1450 a month. The other is vacant. Can rent the other 2brd for the same (maybe more) and the studio can probably get 850-900. The garage/office can probably go for 1000/1200. I want to see that as gravy, if it doesn’t happen, I won’t worry.

My brother and I are owning it and have our own business. We have cash for emergencies.

MY question is the 30 year or the 15 year. We also would like to pay a little extra each month to prepay. However,
we always hear about the tax benefits to the tax deduction on interest. Is there anything to that, what is better…pay down or take the taxes benes??

What do you folks do/think we should do???

As always thanks, were looking to see what the pros do a why. Automatically, you think 15 yhear/lower interest. We’re not sure…

Re: 15yr or 30 yr - Posted by Mark (SDCA)

Posted by Mark (SDCA) on November 06, 2002 at 10:39:30:

Without an interest rate differential there is NEVER a reason to choose a 15 year loan. (If you want to convert a 30 year to a 15 year… just make extra payments.)
However… the 70 basis points you are getting for 15 years is pretty good. Typically 15 year loans are 3/8 to 1/2 a point lower. So almost 3/4 is a good spread. I would take the 15 year.


They have given you good advice - Posted by ken in sc

Posted by ken in sc on November 05, 2002 at 19:29:20:

Everyone has said all the right things on 30 vs 15 yrs.

Look at the cash flow, though. I have found as a property manager that properties generally NET 70% of the rent after taxes/insurance/maintenance/vacancy. Thus is you have gross rents of $4750 then you would net $3325. Your payment on the 15 yr would be $3146. This is OK as long as you manage it yourself. If you decide not to and pay a company to manage or God forbid anything should happen to you where your heirs now own it, it might be nice to have the lower payment to easily afford the manager.

Just a thought. Either way, this is a great deal. Congrats.


In general I like 15 years… - Posted by David Krulac

Posted by David Krulac on November 05, 2002 at 18:33:09:

however there are times when a 30 year can make sence.

But I like the 15 year, the more rapid loan paydown and if you were thinking of putting more in each month the 15 year is the way to go.

If the payments are tight and you plan on holding forever then maybe 30 years,

But I like the lower interest rate with the 15 years, lots of time the spread between 15 and 30 is only .25%, wiht your .70% spread I’d go with the 15 years.

David Krulac
Central Pennsylvania

Re: 15yr or 30 yr - Posted by James Strange

Posted by James Strange on November 05, 2002 at 18:29:40:

Do you plan to hold the property? Since it is a family thing I am going to guess that is the plan. Look at the numbers.

15 year 5.5% 2831 / month X 180 months = $509,580 and it is your in 15 years.

30 year 6.2% 2122 / month X 360 months = $763,920 and it takes 30 years to pay it off.

If you go 30 at 6.2 and pay it off in 15 you will need to pay 2,962 / month X 533,160. The extra .7% will cost you $23,580.

If you need the cash go 30 if you desire to own it free and clear go 15.

Re: 15yr or 30 yr - Posted by Shawn J. Dostie

Posted by Shawn J. Dostie on November 05, 2002 at 18:18:28:

If you can’t decide, do like I do and go 20 years. My reasoning is I’ll be 56 and tiring of the grind.

Good Luck,

P.S. look at an amortization schedule and seel all that interest… it will help you make up your mind :wink:

Re: 15yr or 30 yr - Posted by phil fernandez

Posted by phil fernandez on November 05, 2002 at 18:03:08:

Always an interesting choice. Bottom line is , what are your goals. Are you looking for cash flow now or paying off the mortgage quicker to get out of debt.

Obviously you would get more interest deduction with the 30 yr. mortgage. But that interest deduction is overrated. People get stuck on the tax deductions, but remember for every dollar you save on taxes, you have to pay about four dollars for that one dollar deduction as a general rule. So don’t base your decision on the tax benefits.

In general, I’ve always opted for the 15 yr. mortgage assuming the property will cashflow and carry the financing at 15 yrs. But again that’s me. I’m not right and I’m not wrong.

I like Tim’s suggestion to take out the 30 yr. mortgage and make extra monthly payments on a regular basis. This will have the same effect as a 15 yr. mortgage as far as knocking down the balance. If times get tough you can stop making your extra principal payments and just make the regular payment on the original 30 yr. mortgage. Tim’s way will give you more flexability. And the interest rate between the 5.5% and 6.2% is negligable.

Re: 15yr or 30 yr - Posted by Tim Jensen

Posted by Tim Jensen on November 05, 2002 at 17:39:06:


let me give you a quick answer.

Take out a 30 year mortgage and pay on it like a 15 year or 20 year mortgage. If cashflow gets tight, then go back to regulaer 30 year payment.

Good Luck,

Right answer Tim - Posted by Hank

Posted by Hank on November 05, 2002 at 21:50:06:

One never knows when times are going to get tough.