40 or 50 year mortgage for rental property?

try an interest only loan

yeah, I've tought about that too.

So, are you saying it's a good idea, money wise?

it's largely irrelevant because the principal component in the early years of 40 year mortgage repayments is minuscule

yes, but it gives me interest to deduct for a longer time.
A 30 year term mortgage at 6.5% for let's say $200,000 would involve a payment of about 1,275/mo

For 40 years, the payment would be about $100/mo less.

For both the 30 and 40 year mortgage, I could deduct just shy of $13,000 in the first year.

That's only $100 mo, but why not take it?



I'm wondering if I'm not seeing something.

Here is the break-down on a 30 and 40 year mortgage with your example
of $ 200,000 and 6.5 % interest.

assuming up front fees, annual charges and interest rates are equal the interest only loan minimises the monthly payments

In all reality, though......the "interest only loan" demands a higher rate. So lets say you can get a fannie mae 10/20 interest only loan and the rate is .5% higher......your payment becomes about 1167. Or 3 bucks a month cheaper than the 40 year. Except the 40 year albeit small..pays on the principle too.

Also, unless you sell or refinance, that I/O payment will start to amortize at some point. If you were on a 10/20 .....the payment would go from 1167 to 1550.60 at the end of 10 years.

Though realistically, Chai .....you will have probably sold your home and taken profit and moved onto another investment property OR either refinanced to pull EQ by then.

Hey thanks Brook, that makes it much clearer. I hadn't considered the interest rate on a 40 year would be higher.

I'm 49, so what my goals are would be to rent the property out for, oh....10, 12, 15 years, then sell it.

I'd take that money and buy a luxury condo downtown, walking distance to food, library, entertainment.

I recently paid off the small remaining mortgage on my home with a windfall I'd received. I'm taking the money I would have been paying monthly and putting aside for future rising property taxes. I still have money left over to use as a down payment on a rental house. I'd want to buy a house, not a condo.

When I buy the luxury condo, I'd sell my house, and live off the money from that, quite comfortably.

I like the simplicity of that plan. I'm not interested in complicated flipping, fixer uppers, buying multiple investment properties.
In fact, I'd pay a management company a % of my rent to take care of the day to day problems and maintenance. Since I'd be close by, I'd be able to keep an eye on the property anyway.

This idea just came to me during the week, so I'm going to be looking in the paper tomorrow and see what's up.

Last night I started a spreadsheet to figure payments, deductions, depreciation, all that good stuff. So, I know what I'd have to rent it for to break even, make a profit, and the amount I'd be able to take as a loss at the end of the year. My AGI even with the rental income, would be less than $100K a year, so I'd be able to take up to a $25K loss each year.

Just throwing all this out there, to get opinions....

Has anyone heard about the "Australian mortgage" that is now being offered in the US? I've heard it can save the homeowner thousands of dollars.

Is anyone familiar with how it works?

Stray Cat ........here it is. I've heard about it and have wanted to really study up on it to see if it would be something that would help me on my Primary.

Mortgage Accelerator

Was talking to a real estate friend of mine last week. He has just gotten into it. And funny enough, a friend of mine down in Dayton, Ohio called me last week and he's looking into it also. So that's two guys in one week. It must be catching on.



Chai .........I think you are definitely doing the right homework! I just got my first rental last year. Was laid onto my lap. No way I could turn it down even though part of me had no idea how I could even squeeze such a thing into my busy days. But it has been great. I have an older couple that was looking for a place to rent that they can stay in for about 10 years that are living in it. They have the house professionally cleaned every week. Last fall, they paid to have the leaves kept out of the yard. They pay the rent at least a week early. They take care of the house like it was their own. I do know that if I stay a landlord, I will see both sides of the coin though. But for now...... I'm enjoying not doing much other than collecting the check.

I think your outline of things as you wish for them to play out is very realistic and a good plan. You gooooo girl!

Thanks Brook.

Wow, you have the type of tenants landlords dream about. You are truly fortunate.

Here's an update.

I stopped by this real estate office about 3 blocks from me, and happened to catch one of the agents there, catching up on some paperwork.

I explained my thinking, and she said if I was not concerned about showing a profit for a few years, my thinking was good. I verified that even if I ended up putting more out during the year in mortgages payments than I got in rent, I'd still have more of a savings in taxes, which, in effect, as far as I'm concerned is a profit because of the savings.

Anyway, we looked the listings together, and there is this little stone cottage, just under 1,100 square feet, about 4 blocks from me and around the corner, that's gone on the market for $289K

Several pluses....It's in move in condition, not a fixer upper.
It's got a tenant living it already....if he's a good tenant and paying enough rent, hey, fabulous.

The thing about being in my neighborhood is a big plus. Not so much so I can do drive bys, but because the neighborhood I live in is a really desirable to live in. So the home prices are higher for buying, so rents are a little higher. The people attacted to rent there there either make a higher income, or, are willing to spend a higher percentage of their income, to be in a safe, cool neighborhood. To me that says I have a better chance of attracting a better class of tenant.

Anyway, we drove over there, and honestly, the place is darling.

I walked in with a mindset of looking at it as if I was a potential tenant. Looking around, I'd definately want to live there if I wanted to live in that neighborhood. 2 bedroom 1 and a half baths. 2 living areas, and in one of the bedrooms, miracle of miracles.....a big closet!

The tenant wasn't home, but the place was really clean, a good sign. Low maintenance landscaping.

I'm going to sleep on this.

That sounds wonderful! My rental is about 7 miles from me. Though right next door to my rental is where one of my friends live and they know what goes on. You will be fortunate to have your's close to you.

Sweet! Let us know what you do!

BTW, I scanned that article about the "Australian mortgage" and to me, it seems more trouble than it's worth.

From what I can make of it, anything left at the end of the month, let's say, is all applied to your principle.

But, I don't know about other people, when I have my paycheck deposited in my checking account, I mentally earmark portions of it for short term desires/goals.

I might be thinking I will want to go clothes shopping in a month or two, and am leaving a few hundred alone to take out at that time. Or the family may be planning a vacation, and is accumulating funds for that time 6 or 9 months from now. Or a million other reasons, birthdays, other special events, etc.

What the type of mortgage does is require you to open a separate accounts(s) for your various short to mid range goals, or, seeing as how you may not be that concerned about putting away a specifc amount each paycheck for, let's say a vacation. In that case, I might be more apt to say to myself "I'm going to try to put aside between x and y from each check for vacation."

For the undisciplined, this could actually make their situation worse. They weren't thinking that Christmas was coming, or to put aside for that new car, or a car repair. Then, when the event comes up, they have no spare money, because it's all be sent to the mortgage, leaving them broke. This method seems to require a person remember to put aside money for everything they need to do, that goes beyond the present month.

Just my thoughts on it.

Thanks for the info, Brooke. I wanted to get some more info on the Australian mortgage -- though Chai makes some good points about it.

Good luck with the rental property, Chai. I'm sure it'll be a good investment.

With that accelerated mortgage situation, instead of having your paycheque deposited, couldn't you just deposit an amount each month that they would use 'as your paycheque', thereby withholding some of your money for your plans? Or, alternatively, Chai, you could have it deposited, then withdraw the amount you need for your plans, household expenses, etc. and put that in other accounts.

We have accelerated mortgages here, too, but I haven't gone to far as to investigate them yet.

I plan on doing something similar - buying a house to rent out while renting a room somewhere. I don't plan on being home much, so this makes more $$ sense for me.

Yeah, that was my point about it being a good idea for "undisciplined" people, not.

If you're undisciplined, now you're got to remember to take out that money and put aside in other accounts. Which, they'll probably forget to do, and be stuck when they need the cash.

If you want to make prepayments on your mortgage, seems to me it's easier to once in a while, every few months, take some out and send it in, a one shot deal.

With this mortgage, you're going to have to remember every month to take out an amount you're going to need, which varies from month to month. I'm a good planner, but obviously not perfect in predicting what I'm going to need one month to the next. Every month is different, with different needs, and the undisciplined will now have to think about that, which, is the problem in the first place.

reminds me of a few months ago...I accidently sent the wrong credit card a large amount of money, I'd thought I'd sent it to the card we use for our everyday expenses and pay off each month. I'd sent it to another card we were paying off interest free for a year.

By the time I'd realized my mistake, they'd already credited my account. Guess what? You can't call a credit card company and say "oh dear, I sent you $1500 and I only meant to send you $100. Could you please give me the rest back?"

I had to do some fancy juggling the next month, let me tell ya.

I just went over things quick on that type of mortgage. It doesn't seem to be a fixed rate. (ouch!) But then if it's a heloc , it wouldn't be.

I don't know about you guys but with rates low like they are now.....and the economy moving south, coupled with inflation, could spell stagflation... scares me!

I think I'll keep what I got.