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Emilee Weaver
Emilee Weaver, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 41
Experience:  VP, Director of Finance
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We are buying a house and debating on a 15 yr. vs. 30 yr.

Customer Question

We are buying a house and debating on a 15 yr. vs. 30 yr. mortgage. We plan to live in it for a few years and then possibly rent it out. Do we go for the lower payment a 30yr has to offer and make extra payments on principal, or do a 15yr at the lower rate? Right now rates are maybe around 3.75 for 30 yr and 2.75 to 3 for a 15 yr.
Submitted: 8 months ago.
Category: Finance
Expert:  Emilee Weaver replied 8 months ago.

Hi,

Let me give you some thoughts here. I own my home and actually own 3 rental properties, so I can give you my opinion based on my own experience. I think part of this will be determined by what your goals are with the property. In my mind there are two ways to look at this.

1) Overall cost of the property - hands down you will save yourself a lot of money on the cost of the house overall by going with the 15 year mortgage as it is a lower rate and a shorter amount of time you will be borrowing. If you are interested in paying the least for the property over the long term and building equity faster then the 15 year is for you. You will need to make sure that you have adequate income to cover the higher payments.

2) Cash flow - If you are most interested in maximizing your short term cash flow on the property then the 30 year mortgage might be for you. Your cash flow is going to be your rental income, less all of the costs associated with the property ( mortgage, taxes, upkeep, etc). You might choose this scenario if you are using a lot of your savings to purchase the house and need to build your cash reserves back up more quickly. In that case you might want your monthly expenses lower than normal

In both scenarios the interest would be deductible for taxes. In both scenarios make sure that you have no penalty for early payments ( you can always make extra payments on either option to cut down the length and total cost of the loan). Likely interest rates will be going up so refinancing may be a possibility for your if your goals changed at some point, but I would not count on getting the same good rates.

I hope this helps in your decision making. Please consider rating my answer so that I may receive credit for helping you today.

Emilee Weaver, CPA