What effect does the down payment have on a mortgage?

Question

I am not good at math, hence I am asking you to figure this out. :)

Let's say there is a house for sale that is around $225,000 and a couple wanted to buy it in a 15 year term for about 6% and they put down $6,000 on it as a down payment.

That couple may be spending about $1,900/month- not including the mortgage tax or utilities- just on the mortgage. Does the $6,000 DP have any effect on the monthly mortgage or would it still be $1,900/mo?

What if it were double that, $12,000 on the same one? Or what if the term was changed (God forbid) to the 30 year term at the $6,000 or the $12,000? What then?

Thanks for your input!!

Answer 1

The down payment lowers the principle, which lowers the amount financed, which lowers the monthly payment.  

Additionally, a bigger down payment might get you out of paying PMI.

Answer 2

Here is a mortgage calculator, just enter the numbers you want into it and it will give you the monthly payment.  

http://www.mortgage-calc.com/mortgage/si...

Also, the downpayment will reduce the mortgage amount, so for a $225,000 house with a $6,000 downpayment the mortgage would be $219,000 (225,000-6000).

Answer 3

$213,000 @ 6% for 15 years would be $1,797.42 per month w/o pmi or insurance.

$219,000 @ 6% for 30 years would be $1,313.02 per month w/o pmi or insurance.

$219,000 @ 6% for 15 years would be $1,848.05 per month w/o pmi or insurance.

Now you know why people opt for the 30-year loan. :-)

Try it yourself at the link below.

Answer 4

225,000 with 6K down = 219k principal 15 years at 6%= 1850/month

225,000 with 12K down=213k rincipal 15 years at 6%= 1797/mo

if you go to a 30 year payoff, the interest will likely go iup a half a percent leaving you with a monthly payment of 1385.00 with $6,000 down and $1347 with $12,000 down.

With historically low interest rates, I would not hesitate to do a 30 year.  But if you can swing the payments, a 15 year will save you a lot of money.

Answer 5

The down payment will be used to pay off part of the purchase price.  Therefore, that amount will not be used in your loan amount.  It is money spent.

So, $225,000 - $6,000 down-payment = $219,000 (amount to be financed).  Your monthly payment will be based on the amount financed, not your down-payment.

Answer 6

ok --- here all are correct except that on a 225,000 home the minimum down payment is 3% FHA and that is 6,750 so with just 6,000 theydo noot qualify. put the 12,000 down is 5.33% and they would qualify for almost all financing options and yes there will be mortgage insurance in either case

I am a mortgage banker in TN & KY

Answer 7

The down payment has a couple of effects.

The first is ovbious: it reduces the amount of money you have to borrow in order to buy the property. If a property costs $200,000 and you put down $50,000, you only have to borrow $150,000 to buy the house.

The second effect is more subtle. It has to do with the mortgage terms you can get. Generally speaking, a mortgage at 75% or less of the home's full value gets you the best interest rates and terms (amount of origination points, for example). As you go up past an 80% loan-to-value (borrowing 80% of the value of the home), the interest rates and points generally go up. It also becomes more difficult to actually qualify for the loan, based on your debt-to-income ratio (how much debt you have versus how much you make) and your credit score.

One other aspect of the 80% loan-to-value threshold is that if the first mortgage on a home is 80% loan-to-value or more, the borrower must purchase private mortgage insurance (PMI). This is an extra couple to several hundred dollars a month that the borrower pays to insure that the bank will get all of its money back if the buyer can't make the payments and goes into foreclosure. And, PMI is not tax deductible. So, the way around PMI is to either put at least a 20% down payment on the house or take out a second mortgage for the down payment (or portion thereof).

Answer 8

KEEP YOURSELF IN CASH FLOW RIGHT NOW!