Mortgage Calculator Down Payment
My wife and I are trying to figure out what percent we should put down on
a house that we might buy in Tempe Arizona. First off, we will probably
only be staying in the house for 2-3 years.
We have about $40,000 for a down payment. We are looking at a $170,000
house so we could put 20% down and avoid the mortgage insurance.
However, if we put 10% down our monthly mortgage payment is not that much
more , so the question is since we
would like to sell the house after 2-3 years should we just put 10% down
and take the remaining amount of the $40,000 and put it in an account
which we can get a guaranteed 8.5% return and use that principal to pay
the mortgage for the next 2-3 years.
Using the mortgage calculator supplied at the USA Today website here are
the numbers for a 30 year mortgage at 6.81% for the 2 year scenario:
20% down (34K) 10% down (17K)
principal 136,000 153,000
monthly pay. 887.00 998.00
mortgage ins. none 2400 (est.)
total monthly 21,288 23,952
above+down+ins 55,288 40,952
By my calculations the 10% down is a savings of $14,336. Granted this
certainly would not be the best strategy if we would keep the house for
more than 10 years but it seems like the best case in our situation.
Why then should we put 20% down?
Am I missing something?
Is $100 an accurate amount for mortgage insurance?
Don't forget the tax man. Unless the 8.5% is tax-exempt , the
effective return is going to be reduced by at least your marginal federal tax
rate .
Of course, the effective mortgage interest rate is reduced by some amount,
depending on how many other schedule A deductions you have, so your effective
mortgage rate is between 6.81% , and 4.90% (writing off all the
mortgage interest). If you can deduct against state taxes, even better.
I'd suggest re-running the numbers based on the tax implications -- I don't know
enough about your tax situation to run a reasonable set of numbers.
a secondary effect is "points". Unless you have no origination fee or
points, you'll have some up-front fees that will be higher for the larger
mortgage, so you'll want to amortize those fees over your probable life of the
loan to make a meaningful comparison. You'll probably need to get a
"good-faith" estimate from your lender for both scenarios in order to get a
decent set of numbers. Over a 2 year loan, the effect is probably going to be
on the order of $15-20 per month.