Rental Property Mortgage Finance Expenses

Unless you are fortunate enough to own your property free and clear, mortgage finance expenses can consume a large portion of your net operating income each month. And naturally, the size of the mortgage loan and its interest rate determine the size of mortgage payments that eat into your profits.

As shown by the graphic below, too much mortgage debt can cause quite a strain that is enough to crush anyone, especially small landlords. High mortgage debt expenses usually are the primary cause for landlords experiencing rental property cash flow problems.

Reducing mortgage principal is like trying to roll a boulder downhill - your greatest effort is in the beginning trying to get it to budge, but once you get it to move, it'll gradually pick up momentum and become unstoppable.

To determine how much your monthly mortgage expenses of principal and interest (P & I) would be for a regular fixed-rate mortgage, a special math formula is used. The formula takes into account the total original loan principal, the effective monthly interest rate, and the total number of mortgage payments for the term of the loan.

Example: A landlord purchases a four-unit apartment using a $240,000, 30-year fixed rate mortgage at 6.5% interest. What will the monthly mortgage payments be for this property?

P = $240,000
I = 0.065 / 12 = 0.0054
N = 30 years x (12 months per year) = 360

Using a formula such as this really brings back memories from math class! So, that’s the basics of how to determine total monthly mortgage payments for a regular fixed-rate mortgage.

For more in-depth information about mortgage finance expenses, please visit The Landlord's Library book collection. It's a terrific, one-stop source for practical, comprehensive information on the entire subject of residential landlording.

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Investment Property Cash Flow Analysis