15-Year Mortgage vs. 30-Year Mortgage and using the benefits of the Housing Choice Voucher Program (Formerly Known as Section 8)

The lowest monthly payment generates the most monthly cash flow. This is true. 

So why would a proponent of cash flow be getting a 15-year mortgage right now?

Yeah buddy. Here’s why.

My local government credit union is offering 15-year 6.375% loans as of this month. 

So I immediately went to Rocket Mortgage to get a quote for my investment property. Rocket came back and said they only offered 30-year mortgages and they quoted me at 8.125%. I was surprised by this and wanted to learn:

• What’s the difference between these two loans?
• Which loan should I pick?

Here is what I calculated per $100,000 borrowed:

Here’s how I made the decision to say yes to a 15-year loan instead of the 30-year loan. 

The question I asked myself was how much was the $121.75 extra dollars worth to me?

Luckily for me, my life doesn’t change at all with an extra $121.75, so I made the decision to invest in the 15-year loan. 

I discovered that a 30-year Loan generates an extra $1,461 per year. To me, an extra $1,461 doesn’t make any impact on my life whatsoever. 

• BUT - 

On a 5 or 10 year horizon, the difference between the two loans becomes much more substantial.

With a 15-year loan, I will pay off significantly more principal each year. 5 years into the loan, I will have paid off $18,297.16 more than a 30-year loan. By 10 years, I will have paid off $55,029 more than a 30-year loan.

Since I personally am a believer in refinancing and cashing out when rates are lower, I will be able to pull $43,215 more out of the home using a 15-year loan compared to a 30-year loan at the 10 year mark.

But if I took the 30-year loan, I would have accumulated $14,610 more in income over the same 10 years.

So what I did was compare the difference in loans at the 10 year mark. In Year 10, I will have $30,000 more by taking the 15-year Loan than the 30-year loan. 

I play the long game. In this scenario, the extra cash out principal is more appealing to me. 

When it comes to your own personal decision, you will be the best to decide if you prefer having more cash flow or pay your loan faster. 

Why Does This Apply to Section 8?

The housing choice voucher program essentially guarantees your rent payments and limits the vacancy. This ensures you can properly calculate your monthly cash, and how much you will have left over after paying your mortgage every single month.

Because your revenue (cash coming in) is all but guaranteed, the only variables that will determine how much you collect are the financing options you select.

The big lesson here is that local credit unions are offering better rates than big national commercial banks like Rocket. 

When you get widely different quotes for interest rates, plug the deals into the Forecaster and figure out how much the money means to you.

The biggest thing I did to benefit my life today, was I deferred my gains into the future without sacrificing my present. That allowed me to build a cash flowing portfolio faster and I’m going to keep doing it. 

Until next time,

Big Al

Here's where the numbers come from. I use Bankrate.com