Paying a 30 year note off in 15 years is only marginally more expensive than having the 15 year note to begin with, with the added benefit that if something should happen to your cash flow you have a much lower minimum payment you can fall back to.
Using bankrate.com's advertised rates and mortgage calculators for my zip code and $300k mortgage (which is very nice with some land in my area since with 20% down that is about a $375k house):
- 30 year fixed rate (lowest): 3.500%
- 30 year fixed payment: $1,347/mo
- 30 year fixed total interest paid: $184,968.26
- 15 year fixed rate (lowest): 2.750%
- 15 year fixed payment: $2,036/mo
- 15 year fixed total interest paid: $ 66,455.68
If you make the 15 year payment on the 30 year note you will pay the loan of 14 years early and save $92,302.71 in interest. If you make double payments based on the 30 year note you will pay the loan off in just over 11 years and pay less interest than on the 15 year note with minimum payments.
Pedantically true, but in practice with interest rates what they are there's only a few thousand difference between in the long term a 4% 30-year that is paid off in 15 years, and an actual 15-year at 3%. (Source; I'm doing this with mine, and ran the numbers)
Yeah, I'm doing this. The nice thing about the 30 year but pay extra every month plan is that if you get slammed by some major unexpected expense you can dial down your mortgage payments until your bank account catches back up. It gives you a buffer so you don't make yourself inadvertently house poor.
Perhaps, I haven't fully explored that option and it would make sense since the investor's money will be tied up longer. However, paying down principal quickly reduces total cost of the asset since there's less $$ for the interest to grow/compound against.
