Evaluating the Numbers
LONGER LOANS MAKE SENSE FOR THE LONG-TERM.
by Aaron Chapman, SecurityNational Mortgage
I am often asked about what options we as a company offer to the real estate investor. What methods do I use to aid in the rapid success of the real estate investor? I encourage people to set aside previous thoughts asso- ciated with acquisition of real estate from the consumer perspective and explore the same process from a differ- ent angle. Inevitably a question arises about how much better rate one could get by doing a 15-year loan. Surely the rate is better, so it must be a better savings for would-be real estate investors, right? The rate as it sits today is not a significant difference, but even if it were, I will review the benefit of the vanilla 30-year-fixed over the 15. First, a 30-year will always give greater flexibility. The CEO of the real estate investment business must have the capability to be nimble with their business. They must have the ability to choose options. With a 15-year amor- tization, the cashflow capability is limited if not nullified completely. The entire rent amount is typically needed to satisfy the increased payment for the shorter amortized term. A 30-year loan, however, provides greater cashflow opportunity and can be paid like a 15-year loan should that be the course of action. If an investor owned 10 homes all with 15-year notes, it would require every cent of rental income to maintain. How would he/ she go about managing their properties should two go unrented? They would be forced to go to their pockets to keep the business operating. If it were a 30-year, the cashflows of the other tenanted properties could be redirected to cover unrented properties until they are leased. That is making a real estate business maintain itself, not the investor maintaining the business. Many clients don’t realize they can pay the 30-year in less than 30 years. The concept opened their eyes to great- er possibility with their investment portfolio. They have flexibility to redirect cashflow or snowball the cash- flow for payoffs that outperform 15 years and have the peace of mind that the business will not require their personal funds to keep it operational. Personally, I maintain the thought of taking the full 30 years to repay. Focusing back to December, the case for inflation nullifying compound interest...Check back in April to see how that principle has one paying less in
inflation adjusted dollars. Each scenario has the same loan payoff of $83,960.00. The 30-year example with $73,711.04 of actual interest charged calculates to be less than the 15-year with a dollar amount of $33,529.18 being charged. • DISCLAIMER: SecurityNational Mortgage Company, and its loan officers, unless individually licensed and specifically denoted in their credentials, are not qual- ified to, and are prohibited from representing them- selves as accountants, attorneys, certified financial planners, estate planners, investment specialists or tax experts, and will not advise you in those matters. Always seek the advice of a licensed professional. This article is for informational purposes only, contains the opinion of the author, not necessarily the opinion of SecurityNational Mortgage Company, and should not be construed as lending advice. Loans are subject to borrower qualifications, including income, property evaluation, sufficient equity in the home to meet LTV requirements, and final credit approval. Approvals are subject to underwriting guidelines, interest rates, and program guidelines, and are subject to change with- out notice based on applicant’s eligibility and market conditions. Refinancing an existing loan may result in total finance charges being higher over life of loan. Reduction in payments may reflect longer loan term. Terms of the loan may be subject to payment of points and fees by the applicant. Equal Housing Lender. Se- curityNational Mortgage Company Inc. NMLS# 3116. Any amounts, figures, payments or loan terms stated are based on continually changing markets, rates, loan programs and borrower specific qualifications, and subject to change without notice. See loan officers fea- tured for a personal consultation and accurate pricing. The above information is the sole intellectual prop- erty of the author. Any distribution without written consent of the owner is strictly prohibited ©.
Aaron Chapman has been in the finance industry since 1997. His clientele ranges from first-time home buyers to those investing in multiple properties for long-term cashflow. He is presently ranked #14 in an industry of more than 300,000 licensed loan originators.
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