- 7+ Years (and ability to pay the HELOC off very quickly) The Conventional starts to look much better especially if you can get the home equity line of credit knocked out within a year or two. On the other hand, if you really have this much cash flow, maybe you should be looking at a 15 yr mortgage instead.
Closing costs tend to complicate things quickly. To simplify the math, we didn’t include any closing costs. Keep this in mind when you’re comparing various mortgage options. Ask the lenders to provide quotes with as close to zero closing costs as possible at least for starters. It’s much easier to compare mortgages structured similarly from a cost standpoint.
Should You Put Cash Down?
What if you have some cash to put down or are considering waiting until you have the cash? In that case, you’ll be comparing the physician mortgage with the conventional 20% down mortgage. To give you a clear comparison, let’s structure the 20% down conventional loan to have the exact same payments as the physician mortgage loan. The only difference is the down payment and the interest rate.
- $400,000 balance
- year fixed rate at 3%
- $2, per month principal and interest
- $500,000 balance
- 30 yr fixed rate at 4%
- $2, per month principal and interest
Looking at those numbers, you’re probably thinking you’d take the $0 down option. Maybe you don’t have that much cash available or maybe you think there are smarter ways to use that $100,000. You could use it to pay off loans or start investing. And 4% is still a really good rate. But how does it really compare to the 20% down option?
- Option 1 $118,998
- Option 2 $359,348
As you can see on the charts above, putting $100,000 down will end up saving you over $240k in interest. Plus (and this is a huge plus), you’ll get your mortgage paid off almost 12 years sooner.
Additionally, don’t forget that having equity in your home will provide greater security and flexibility, especially if something unexpected happens. With the 100% financed physician mortgage loan, you should expect to start out underwater. If something doesn’t work out and you’re forced to sell quickly, you should be prepared to write a potentially large check for up to 10% of the purchase price just to get out of the home.
On the flip side, if you do come up with the $100,000, you could finance 100% using the physician mortgage loan and invest the cash. If you run those numbers, the end result will look much better. But not only does this require an aggressive investment, it also requires greater leverage on your home, which further adds to the risk. It will also require many years of disciplined investing and assumes you never spend any of it. That’s not impossible, of course, but it’s much easier said than done.
Once again, we’ll assume both are structured to wrap closing costs into the loan payday cash advance Jasper MN to make the math simpler
At the end of the day, getting the conventional mortgage and paying it off more quickly is a much better deal. If you don’t have the cash for a down payment, however, the physician mortgage loan is a solid alternative worth considering. Still, it’s not always automatically best solution.
If you already have a physician mortgage loan but you’re not paying attention to it, there’s a good chance you’re throwing away good money. You should review your options for refinance if any of the following occur: