Is there a general rule of thumb...?

Asked by Jessica, Austin, TX Mon Jun 13, 2011

For dropping $20,000 off the cost of a house, how much does that on average drop your monthly payment? I now a lot of things go into the monthly payment, just didn't know if there was a typical average or formula I could use. All the one's I've found don't include all other costs (insurance, etc).

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Scott Butcher, , Austin, TX
Mon Jun 13, 2011
If your looking at a cumulative payment figure including Principal, Interest, Taxes & Insurance ~ then your looking at roughly $150/month difference in payment based on the following assumptions:

-Loan amount (or cost of the house if you like) of $100,000 to $120,000
-Interest Rate of 5.00% for a 30 Year Term
-2.25% Tax Rate (based on either $100K or $120K)
-.03% for Insurance Rate (based on either $100K or $120K)

PMT: $536/month vs. $644/month
Taxes $187/month vs. $225/month
Ins. $25/month vs. $30/month

Total $748/month vs. $899/month or a difference of $151/month approximately.

OR if you like you can multiply you house differential cost by a factor of .0075% to come of up the average total monthly payment to get the figure you need based on a 30 year loan. That would be a good approximation.

Hope this helps.

Scott Butcher
Mortgage Banker
Maker Capital Group, LLC, an Ameripro Funding Co.
1 vote
Don Groff, Agent, Austin, TX
Tue Jun 14, 2011
Hi Jessica,

Lot's of great answers. The easiest way to do this is to find a good online mortgage calculator. This way you can key in the specific numbers like the loan amount and the interest rate for that specific loan. Then you can change the loan amount accordingly and see how the payment changes. The difference will depend on the interest rate of that loan.

Hope this helps.

Don Groff
REALTOR | Mortgage Broker | Consultant
Keller Williams Realty | 360 Lending Group
o.512.669.5599 m.512.633.4157
listings@dongroff.com
0 votes
Don Tepper, Agent, Burke, VA
Mon Jun 13, 2011
Try the site http://www.mortgagecalculator.org It's simple and straightforward, and once you've input one set of numbers you can go back and change the one you want.

At today's interest rates (4.5%), for a 30 year mortgage, dropping $20,000 off the cost of a house will lower your monthly payment by $101.

For a 15 year mortgage (interest rates would be a bit lower, but in this case let's still assume 4.5%), dropping $20,000 off the cost of a house will lower your monthly payment by $153.

Hope that helps
0 votes
Jeffrey Schn…, Agent, Austin, TX
Mon Jun 13, 2011
Jessica,

Great question, lot's of people would like a great rule of thumb. Remember that rules of thumb only apply to a given market with a specific set of circumstances. Presuming current rates of say 4.5% on a 30-year note with normal amortization, your monthly payment per $10,000 is about $50, so in your case $20,000 difference in purchase price is going to drive a difference of about $100.

To account for typical taxes, and insurance, per $10,000, plan on $25 for taxes and $3 to $5 for hazard insurance.

So a safe number to plan with is $80 per $10,000. If needed, PMI will typically cost less than $5 per $10,000 of loan value.

The above presumes a tax rate of 2.5%, and presumes for insurance purposes that the primary difference in comparing 2 homes that are $20,000 apart is due to differences in the home themselves. If instead the differences are primarily location, land value, views, etc., then the insurance cost difference may be $0.

Hope this is helpful.

Jeffrey
512-913-7480
0 votes
Suz A, Agent, Longmont, CO
Mon Jun 13, 2011
Hello Jessica!

I think a mortgage calculator will help you answer the question you have. You can locate these easily by google searching "mortgage calculator." If you want to factor in principal AND interest, do a search for that. Or, here is a calculator that will help you:

http://www.realestateabc.com/calculators/PITI.htm

If you need help beyond that calculation, please contact a local Realtor (maybe three if you haven't been speaking with one). We are about the service and happy to answer your questions.

Best,
SuZ
PML of Longmont, CO
Web Reference:  http://www.suzrealestate.com
0 votes
Dan Tabit, Agent, Issaquah, WA
Mon Jun 13, 2011
Jessica,
If you are talking about a home you currently own, making a large payment will not change your monthly payment, only shorten your term. You would reduce your overall interest costs and gain equity much faster with each payment, but unless you refinance your monthly payment is fixed at the time you take out the loan.
The only exception to this would be an interest only loan. If you have this type of loan, you may see a reduction of minimal payments when the balance recasts. This may happen right away or at some later planned date according to your contract.
0 votes
Bill Austin, Agent, Austin, TX
Mon Jun 13, 2011
Jessica,
A general figure is about $9 per $1000 of amount borrowed.
This should cover principal, interest, insurance, taxes, and in most cases PMI

Bill
0 votes
, ,
Mon Jun 13, 2011
Based on today's interest rates and if the loan is a 30 year fixed you are looking aroung $100 per 20k.

Hope that helps!
Web Reference:  http://www.JohnMcClellan.com
0 votes
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