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Updated over 2 years ago on . Most recent reply
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Is it ALWAYS best to put least amount down?
What is the best way to compare mortgage options if the down payment and interest rate are dissimilar? I know a lot of people say to put the least amount of your own money into the deal as possible, but that can't always be the case.
For example I have two commercial lenders who have approved my purchase on a 16 unit multifamily.
Lender A wants 20% down, 6.6% interest on a 20 yr amortization.
Lender B wants 25% down, 5.91% interest on a 20 yr amortization.
Do I look at IRR or ROI at some point in the future to compare the two? Or something else?
If the 20% down option had an 9% interest rate, you'd probably be better off with the 25% down and 5.91% right? At some point the higher rate stops being worth the lower down payment, but how do you know when?
Thanks for the help!
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Quote from @Anthony King:
What is the best way to compare mortgage options if the down payment and interest rate are dissimilar? I know a lot of people say to put the least amount of your own money into the deal as possible, but that can't always be the case.
For example I have two commercial lenders who have approved my purchase on a 16 unit multifamily.
Lender A wants 20% down, 6.6% interest on a 20 yr amortization.
Lender B wants 25% down, 5.91% interest on a 20 yr amortization.
Do I look at IRR or ROI at some point in the future to compare the two? Or something else?
If the 20% down option had an 9% interest rate, you'd probably be better off with the 25% down and 5.91% right? At some point the higher rate stops being worth the lower down payment, but how do you know when?
Thanks for the help!
Using your numbers above, and applying them to the same SF property (this is a real property), you get the following:
Assumptions -
PV/Buy - $200k
CF before Mortgage Pmt applied - $1750/M; $21k/yr
Option w/ Lender A - DP = 20%; I% = 6.6; Term = 30 yrs (the more years the better)
DP = $40k
CF w/MP = $750/m; $9k/yr
Yrs to profit < 4.4 yrs
Option w/ Lender B - DP = 25%; I% = 5.91; Term = 30 yrs (the more years the better)
DP = $50k
CF w/MP = $850/m; $10,200/yr
Yrs to profit < 4.9 yrs