Real quick, listen up.
I’m gonna tell you why you pay money down on a house.
In this case, the house costs $200,000, and the best interest rate you are able to find currently is 4%.
Option A: Pay down 10% ($20,000) for a 30 year mortgage on said $200,000 home.
Option B: Pay down 0% ($0) for a 30 year mortgage on same $200,000 home.
Trust my math from here on out. It will be accurate within a dollar, just depends on how you round.
If you go with option A, you will have a minimum monthly payment of $855, which equates to $307,800 over 30 years.
If you go with option B, you will have a minimum monthly payment of $950, which equates to $342,000 over 30 years.
Seems like a no brainer, yes?
Paying $20,000 up front saves you $34,200 over 30 years.
Now, a slight twist:
Option C: Pay down 10% ($20,000) for a 15 year mortgage on said $200,000 home. Same interest rate (which isn’t realistic, it would be better than 4%)
15 year mortgage!
Option C would result in a minimum monthly payment of $1291.
Over 15 years you would pay $232,308.
30 year mortgage with nothing down costs you an extra $142,000.
30 year mortgage with 10% down costs you an extra $107,800.
15 year mortgage with 10% down costs you an extra $32,308.
Of course, these numbers include principle and interest only; also included in a real mortgage (at least in Alabama) would be insurance and property tax.
You can get them all combined into one payment in a thing called ESCROW, which stands for
Extremely Stupid Crap Really Outlandish Wonder…
That’s the best I can do… short time frame… you understand…
Anyway, money down?
You be the judge.