Which Loan Scenario is better - Large Down/Large Prepayment?
Assumptions: 400K home price, nominal 20% down, 30 year fixed
Scenario 1:
Down: 40%
Interest Rate: 5.25%
Loan Amount: 240K
Scenario 2:
Down 20%
Interest Rate: 5.25%
Loan Amount: 320K
Prepayment in the first five years: 80K
Under this scenario, I want to understand which one would be financially better - we can assume that closing costs are the same for both. The way I look at it, scenario 1 reducing the loan principal upfront but the loan is assessed for 30 years while scenario 2 has higher starting principal but with prepayment, the effective loan period is reduced from 30 to lets say 20 years. Running the numbers, I get a lower total cost of interest on scenario 2 than scenario 1.
Is this reasoning correct? Any thoughts/opinions are highly appreciated.
by Bubbley17
from ,
. Aug 4th 2009
Debra Clark (Debra Clark)
#146 ranked lender in California - 42 contributions
This obviously also depends on how long you intend to stay at the house. If you are looking to stay in the house more than 5 years, I would certainly take loan#2 since u have the same interest rate but u have put less money down and not tied up your cash in down payment
Ask our community a question.
Get an answer
Related Questions
