It’s to pay down that hundred thousand dollars that you borrowed from the bank or that ninety seven thousand dollars that you borrowed from the bank this is done in an amortization schedule so there are several different types of loans that you can get. I want to talk about two right now just for the purposes of this video. You can either get a 30-year loan or a 15-year loan. Now they are exactly as described, exactly as the name says, one last 30 years, the other one lasts 15 years the 30-year loan is very typical, a lot of people, most people I would say that go in to buy a home a primary residence or even an investment property will get a 30-year loan.
What that allows you to do is to pay less of a payment each month but you will end up paying probably a little bit more over time because of course, it goes on for 30 years and you’re paying interest on that loan over the entire 30 years. A 15-year loan is sometimes attractive to individuals because although it means a little bit more of a payment each month, you pay over a lesser period of time. Now this is in terms of a primary residence. If you’re buying an investment property, most people, at least with the systems that we implement and use, you’re typically not going to hold on to a property past five years so we will usually tell people to do a 30-year loan because cash is king today, the more cash you can keep in your own pocket today, the better you are so instead of paying more to the bank in a 15 year loan, you may opt to pay less to a bank in a 30-year loan so that you can keep more cash and invest more now.
So a mortgage is a loan, you’re getting money from the bank, right? Or basically, the bank is paying the sellers but you’re borrowing that from the bank, you’re paying interest on that mortgage and so that’s why the banks are willing to do it because they’re not only getting their principal back or the loan amount that they lent you but they’re also earning principal. Over a 30-year loan, that can equate to three times as much as the original loan value which is why a lot of people like to pay off their homes faster but I’m telling you right now, in investment real estate, you don’t necessarily want to pay off that loan as fast as possible, you want to use the money to your greatest advantage. Money today is always more powerful than money tomorrow. Typically, right? Cash is king so the more you can keep in hand and invest if you are reinvesting in any way the better for you. Mortgage, a mortgage, it is a loan, it is debt. A lot of people are concerned about debt, of course, we’re taught in our society to become really concerned about debt but I will tell you this, debt can be good and debt can be bad.
Consumer debt is bad, right? Don’t do so much of the consumer debt, in other words, don’t rack up credit cards to go buy clothing and toys and different things like that but if you’re buying real estate with the purpose of earning money, with the purpose of doing a real estate type of business, with the purpose of growing a portfolio, that can be what we call good debt, taking on a mortgage or getting a mortgage from bank, getting a loan from a bank that you’re even going to be paying interest on, if you’re earning more an interest then you’re paying out the bank in interest that can be a really great investment because and the payments that you’re getting from the home are not only paying off your property, paying off that mortgage, right. That monthly payment which includes both the principal and the interest but if you’re doing it right, it’s also going to pay you above and beyond what those monthly payments are. This is what cash flow is, this is why mortgages are great if used properly in a real estate investment.