1. What are your long-term goals? Do you want to live in a paid off house or do you plan on retiring or having children in college in the next 15 years or so. Living mortgage free would give you more cash flow to pay for things like that or if your income will be less due to retirement.
2. Can you afford the payment and still maintain the lifestyle you are accustomed too? Even with the larger down payment you will have a slightly higher payment with a 15 year most likely. Make sure the payment is something you can live with based on your current and future income estimates.
3. Could you better invest that money elsewhere for a higher return. There was a good article written years ago that showed a person who paid off their mortgage earlier by paying an extra amount each month and another person who invested the same extra payment amount each month in mutual funds or other investments. The person who invested in the mutual funds was able to accumulate much more wealth and pay off the home earlier than the person who made the extra principal payments. And remember this was back when interest rates were a few points higher than they were today. Of course no investment is guaranteed so this option does have more risk but has the possibility to offer you a better return.
Remember that with tax advantages your effective interest rate is lower than the rate on your mortgage... money is very cheap these days so by paying off that very low interest mortgage you really need to think if that is the best possible use for that money?
Living in a home with no mortgage is great but you really need to look at the big picture to see what will help you accumulate the most wealth over time.
Hope this helps.
Don Groff | REALTORÂ® & Mortgage Broker | Austin Real Estate Pros & 360 Lending Group
office: 512.669.5599 | mobile: 512.633.4157 | email: firstname.lastname@example.org
websites: http://www.AustinListed.com | http://www.360LendingGroup.com
I agree somewhat with Chris but I'm going to take it one step further.
Using just an example of a minimum down 30 year fixed scenario.
Let's say you put 5% down which would give you a loan amount of $285,000 & at that you would have an interest rate of 3.75%. You would have a principle & interest payment of $1,318.88 and a PMI (private mortgage insurance) payment of around $213.75.
Now let's look at what happens when you put 20% down.
You would have a loan amount of $240,000 & at the same rate, your PI payment would be $1,111.48. That's a savings of $421.15 per month, sounds good right? Not so fast. Let's look at your break even point.
The difference between the down payment options above is $45,000. To calculate your break even point, divide the difference by the monthly savings. $45,000 / $421.15 = 106.85 months or 8.9 years. So it will take you 8.9 years to recoup the extra $45,000 you put down by saving $421 per month. In my humble opinion, cash is king & once you tie up your cash in a home, it's pretty difficult to get it back it out, especially in Texas. There are plenty of people that put 20% or more down on new home purchases before & after the housing crash that lost it all so in my opinion it's better to keep that cash in another investment vehicle with easy access in the event you need to get at it.
EXIT One Realty
You received good advise from the other respondents.
Simply put, the least cost way to pay the house off in 15 years by making payments on regularly scheduled dates is with the 15 year loan when compared to a 30 year loan with additional principal payments to pay the loan off in 15 years..
There are two way that you can financially justify taking the 30 year loan and paying it off in 15 years: one is if you believe that there may be times when you need the flexibility of paying the 30 year payment because your finances may not allow you to reliably make the 15 year loan payment on a consistent basis.The higher rate and overall cost of the 30 year loan is significant; the other is the case where you believe that you can, over time, make significantly more(after tax) than the rate on the 30 year loan by investing the funds freed up by making the lower down payment and the difference between the 15 and 30 loan payments (say $65k lower down payment and $400 a month on the regular mortgage payment), where you can periodicaly make payments from money invested or make a balloon payment from your accumulated invested funds at the end of 15 years.
CONSULT YOUR FINANCIAL OR TAX ADVISOR to determine which is best for you. As a Realtor, I cannot, by law, advise you in that regard. I can advise you on a real estate purchase if you have not engaged a Realtor. Please contact me at your convenience if I can be of service.
Best of luck,
Thomas J. Cantalini
Broker Associate, REALTOR(R) GRI, CNE, SFR, MBA
Century 21 HSK and Associates Austin
9020-1 N. Capital of Texas Hwy., Suite 210
Austin, Texas 78759
15 year w/ 80k down puts you around $1519/mo P&I *180 mo = $273,420 plus down payment is your total amount paid for house.
30 year you would need to put down at least 20% to avoid mortgage insurance, which I would highly recommend. This only saves you $20k upfront. The monthly payment would be around $1111/mo *360 = 399,960 plus down payment is your total amount paid for the house.
The question you need to ask is what is YOUR time value of money? What are the opportunity costs associated with an extra $400/mo. Do you need payment flexibility? If you know you are going to payoff in 15 years then the 15 year term is a cheaper option bar none, however the questions above should help decide if itâ€™s the best option for you.
Purely a personal decission in the end. Loan terms can be almost and duration you want 30, 25, 20 15. 10. Interest is paid heavily in the early years. Making a shroter term "locks" you into making the higher payment while a longer term allolws you to pay extra when you want or not. A good question to ask yourself is "What would I do to put the extra money (down payment & extra for higher monthly) to work earning more money." Finding a comfortable balance is the key. Many factors to consider.
The million dollar question is how much can you afford comfortable monthly. Allow me to give you a breakdown of 3 different scenerio so you can see exactly what that would do to your budget.
BUYING A HOME (The process start with the Banker not the Realtor)
Start the process right 1st by talking to a Licensed Mortgage Professional to determine who much home you can afford and whether you are credit wordy and is there an ability to repay the loan.
The Mortgage Professional will give you a conditional approval letter to take to the realtor.
Once the realtor has found your home you should get it inspected to determine if itâ€™s structurally safe (have the realtor recommend one locally) and be sure to ask your realtor to negotiate a home warranty paid by the seller.
Now is the time to determine and negotiate you rate and terms with the Loan Officer who is responsible to order an appraisal that you will be responsible to pay for prior to the arrival of the appraiser.
Youâ€™re Mortgage Professional / Loan Officer will be responsible to guide you the rest of the process and should not take more than 30 days.
Wherever you're located in this nation, you can trust you're working with a reputable mortgage banker - not a fly-by-night operation. Here's why.
Bank of England is partners with every major investor on Wall Street; allowing us to provide the best rates and terms on all mortgages.
We are approved by the Better Business Bureau and Bank of England /ENG Lending is the only mortgage bank among its competitors that is owned by a FDIC insured bank and did not need government bailout to remain solvent.
Bank of England loan officers don't simply facilitate the loan process; they act as "financial advisors," helping clients assess their finances on a larger scale. Whether you're self-employed and need a low-doc mortgage loan, or you're searching for the best rates on a jumbo home loan, your loan officer is here to find your perfect solution.
Get the facts about home mortgages from the experts at ENG Lending. Learn about different types of home mortgage loans and what to expect during the mortgage application process. Plus, find information about the current mortgage market and which mortgage myths you should never believe.
Let ENG's experienced Mortgage Bankers help you find a solution for your financial needs. Call or Email me to get a FREE copy of the top 25 question you must asked your loan officer before you do business with them. Benefit from my 21 years of experience answering the most common mortgage questions.
16800 N. Dallas Pkwy, Suite 290 | Dallas, TX 75248
Office: 972-646-2411 | Cell: 214-418-7022 | Fax: 214-614-4637
Bank of England /dba ENG Lending: NMLS# 418481
If you're not yet working with a buyer's agent and would like some excellent free professional assistance, please contact me and I will do all I can to assist you. I am in the greater Austin area, but I have a large referral base of top agents all over the world.
Joe Jarusinsky, Realtor/Master Instructor, Keller Williams Realty, Austin's #1 Real Estate Company, Ranked #1 by Buyers and Sellers (JD Power & Assoc. 2012) Call 512-261-4415