Ask Money Girl: The Best Mortgage
Q. If I’m buying an investment property (a second house) to rent out, is it better to get a 15- year or 30-year mortgage loan?
A. Even though having the investment paid off in 15 years sounds so much better than 30 years, I recommend getting a fixed 30-year mortgage. The payment will be much lower, which gives you more flexibility. For instance, if you have more vacancies or repairs than you anticipate the lower payment will be easier to manage. However, if the investment is profitable, you can opt to pay more than the scheduled payment toward the principal balance and pay off the loan well-ahead of the 30-year schedule.
You could make higher monthly payments that match a 15-year amortization schedule and kill the loan in 15 years, for example, if all goes well. Or you could make extra payments toward the principal balance whenever your profit allows it—that’s what I’ve always done with my rentals. When they’re making money, I’ve made big extra payments. But when they’re vacant long-term or need a new roof, for instance, I’ve made the regular monthly payment.