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Discussion Starter #1 (Edited)
Here is my situation:

I am a college minister in a college town where the average 4 bedroom home sells for a little over 1 million dollars.

I'm married with 5 little kids. 33 years old.
Monthly Net Salary - $5450
No consumer debt

God provided a really great way for us to be closer to college students through an investor who we purchased a home with together. They brought a little over $500,000 and we brought $115,000 cash to buy a home outright. Here's the craziness, is we had to gut the home and remodel and these costs have run more than we were hoping to around $250,000 which the investor currently has paid. We are going to refinance the home which is now appraised around $1 million, but we would refinance the $250k to pay back the remodel to the investors. They would still hold a percentage of the home with us. So we would have around $365k and the investor around $500k.

If we refi with a 15 year mortgage, it would put us around a monthly payment of $2350 with taxes and insurance.
If we refi with a 30 year mortgage, it would put us around a monthly payment of $1750.

Our investor and my agreement is that at 5 years either of us can sell. (We have and continue to have a fantastic relationship with this couple.)

We currently let gals live with us for free, but in the fall, we'll have two girls that will pay $300 each ($600)/month, but I don't want to bank on this income.

Would you refi into a 15 year mortgage?
Would you refi into a 30 year mortgage and pay extra with the rent I get from the extra room in the house?

FYI Rent runs around $3500+ in the area.

If you got to this point. Thanks for reading!
 

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First question, what would the interest rate be on respectively a 15 and a 30 year mortgage? The 30 year mortgage is probably going to be more expensive with the interest rate. If the difference is small enough, you could go with the 30 year mortgage and pay extra. If the difference is significant and you have no other debt, the 15 year mortgage seems the best option to me. It would still be under 50% of your mortage, so with frugality it would be feasable. Though being frugal and watching the dollars will be a necessity.
 
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Since you're planning on selling in 5-yrs, the 30 year mortgage and don't pay extra toward the principal. Every time YOU pay extra toward the mortgage, your "investor" is going to take a portion of that as their equity share.

And frankly, that would be my option even if you wanted to pay off the mortgage and be debt-free. With a 30-yr mortgage, your required minimum payment is less - including the minimum you have to pay toward interest - which means it is easier for you to come up with the extra principal payments. If the minimum on the 15-yr mortgage stretches your budget, especially on lean months, then you'll be less likely to pay extra.
 

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How does the investor portion come into play, long term? As I see it, they aren't paying anything else, correct? If the mortgage is paid off, then you would still have to buy out their portion to make the house "yours"? If the investor chooses to sell at the 5 year mark, how does that play out with regards to whomever buys their share? If someone buys it and wants to boot you out for whatever reason, since they technically own more of it than you, what happens?

Anyway, at face value, I would take the 30 year and pay extra as you see fit. Make the same payments as the 15 year mortgage, and add extra from the rent. If you see issues arising at the 5 year mark, I wouldn't pay extra at all.
 

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Discussion Starter #5
How does the investor portion come into play, long term? As I see it, they aren't paying anything else, correct? If the mortgage is paid off, then you would still have to buy out their portion to make the house "yours"? If the investor chooses to sell at the 5 year mark, how does that play out with regards to whomever buys their share? If someone buys it and wants to boot you out for whatever reason, since they technically own more of it than you, what happens?

Anyway, at face value, I would take the 30 year and pay extra as you see fit. Make the same payments as the 15 year mortgage, and add extra from the rent. If you see issues arising at the 5 year mark, I wouldn't pay extra at all.
Thanks for all your input!

In regards to the investor it will approximately be around a 60/40 split. I'll own 40%, he'll own 60%. The investor just wants his percentage of equity at sale of the house, no payments on his $500k. So If the home sells for $1 Million, he'd take $600k and I'd walk with $400k and pay off whatever is left on my mortgage. If in 5 years he wanted out and we wanted to buy his potion, we'd get 3 appraisals and take the average of them all and that would be the "sale price" for us and we'd work with that number. The chances of me buying him out is slim to none, unless I were to get another investor. Does that make sense?

I've projected right now in 5 years if I paid the same amount on a 30 year that I would a 15 year mortgage, I would have around $10k less equity.

If I made minimum payments on the 30 year vs the 15 year, get this, in 5 years I would have $50k less equity in the home. Youch! If only people could really understand the difference!
 

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I can only speak from the perspective of owning my own house without anyone else involved. In my case, I paid extra because being debt free was more important than the options otherwise available. I started with the 30 year mortgage to keep payments lower, and then refinanced to a 15 year when I became more comfortable with my payments and other situations improved.

What's your ultimate goal? Debt free? Long term wealth? Your situation might lend itself more to the latter, in which case I suggest looking up Old Guy's posts.
 

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You're forgetting about cash flow. At a conservative $5500 net income, you should be paying 1/4 of that toward housing. The 30-yr mortgage payments exceeds that amount but with renters you'll have a little breathing room. Payments on a 15-yr mortgage leaves you so "house poor" month to month, you'll be scratching just to eat. Considering you have an "investor", you might not even qualify for a 15-yr mortgage and you'll end up being highly motivated to walk away from the entire deal if your finances get tough. This is why I recommended you take the lower required payment on the 30-yr mortgage and pay extra if and when you can.
 
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