How Much Cash Should I Put Down As A Down Payment On My Home Loan?

Down Payment versus Interest Rate Versus Lifetime PayoutWhen it comes to fixed rate home loans, it’s obvious that the lower your interest rate, the better, but just how much of a difference can a quarter point make? How much long term savings can putting down an extra $25,000 mean? $50,000?

There are many factors involved with how much you can afford to put into your home. There might be a limit to what you can afford or you could need cash available for other investments. There might also be minimum requirements established by the lender that dictates how much you need to put down. This article examines the differences in monthly expense between various down payments and interest rates.

Let’s use an example of a $500,000 home with a 20%, or $100,000 down payment, which means a loan amount of $400,000. we’ll start with a 3.75% interest rate on a 30-year fixed rate loan.

Beginning Balance Interest Principle Total Ending Balance
Month 1 $400,000.00 $1,250.00 $602.46 $1,852.46 $399,397.54
Month 2 $399,397.54 $1,248.12 $604.35 $1,852.46 $398,793.19
Month 3 $398,793.19 $1,246.23 $606.23 $1,852.46 $398,186.96
Month 4 $398,186.96 $1,244.33 $608.13 $1,852.46 $397,578.83
Month 5 $397,578.83 $1,242.43 $610.03 $1,852.46 $396,968.80
Month 6 $396,968.80 $1,240.53 $611.93 $1,852.46 $396,356.87
Month 355 $10,994.21 $34.36 $1,818.11 $1,852.46 $9,176.11
Month 356 $9,176.11 $28.68 $1,823.79 $1,852.46 $7,352.32
Month 357 $7,352.32 $22.98 $1,829.49 $1,852.46 $5,522.83
Month 358 $5,522.83 $17.26 $1,835.20 $1,852.46 $3,687.63
Month 359 $3,687.63 $11.52 $1,840.94 $1,852.46 $1,846.69
Month 360 $1,846.69 $5.77 $1,846.69 $1,852.46 $0.00

Notice the difference in the amount of interest versus principal paid during the first six months than the final six months, Month 354 through Month 360. During the beginning of a loan, the borrower pays back mostly interest. Over the lifetime of a 30-year loan, the borrower would have paid a total of $666,886.45 for a $400,000 loan at 3.75%.

At 3.75%, how much difference would putting down an extra $25,000 make? Your loan amount would decrease to $375,000 and the additional down payment decreases your monthly payment by $110.01 to $1,736.68. Over the lifetime of the loan, you would pay $16,660.40 less in interest by borrowing $25,000 less.

At the same interest rate, how much difference would putting down an extra $50,000 make? Your loan amount would decrease to $350,000 and the additional down payment decreases your monthly payment by $231.55 to $1,620.90. Over the lifetime of the loan, you would pay $33,340.80 less in interest by borrowing $50,000 less.

What if the borrower was only able to obtain a 4% rate and put down $100,000? The 1/4 point only adds about $57.21 a month to the mortgage payment, but that totals $20,611.58 in interest over the lifetime of the loan.

Whether or not these differences in lifetime payout will affect you aversely depends mostly on how long you plan on staying in your home. Talk to a loan officer about what type of loan is right for you.

If you’re in the market for a home including REOs for sale in California, call us today at 1-800-287-1808 to speak to one of our expert brokers about finding the perfect home for you. While you’re here, use our Advanced Real Estate Search to view all available homes for sale in California.

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