Low Mortgage Payment? (real estate, rent, homeowners insurance)

[Whatsnext75]

I'm asking this here because folks here seem to be pretty informed on how real estate works.

A colleague of mine recently bought a house and has been pretty open about the whole process. He bought a house for 390k and mentioned his mortgage is only $100 more than his previous rent was. I found out his rent was $1100 so that means his mortgage is only $1200. He mentioned putting down 61k...so that mortgage payment doesn't make sense right if that's all he put down?

[sal1181]

That does not sound correct. I had a client who purchased a townhouse for $205K. She put 20% down and her payment was a little over $1100 and that included taxes and insurance

[Whatsnext75]

Yeah..he'd have to have put down way more than 61k to get $1200 payments on a 390k house. If he really does have $1200 payments, how much would he have likely put down?

[Parsec]

Originally Posted by Whatsnext75

Yeah..he'd have to have put down way more than 61k to get $1200 payments on a 390k house. If he really does have $1200 payments, how much would he have likely put down?

You're missing one important piece of information: What type of loan did he get? Fixed, variable, 30-year, 40-year? What's clear is he did not get a traditional 30-year fixed rate mortgage and his payment does not include escrows for property taxes and homeowner's insurance.

Using the google mortgage calculator comes up with a couple possibilities. A 3.25% fixed rate 40-year mortgage for $329k equals $1226/mo in payments. Another possibility is a 30-year ARM at 2% during the initial period, which results in a $1216/mo payment. Obviously his payments will go up after that initial period is over though. If he did get a 30-year fixed rate mortgage at say 4%, then he would need a $140k down payment ($250k loan) to have a $1194/mo payment without escrows.

I love playing with these calculators. I'm always trying to figure out what I need to put down to lower my payment or decrease my loan term. Once I did a cash-in refinance after getting a huge bonus in order to decrease my loan terms (e.g. refinance from a 30-year to a 15-year fixed rate) while keeping the same monthly payment.

[Whatsnext75]

Interesting.

Do many people have mortgage insurance? The only reason you get that is if you don't put down 20% of the down payment right?

[GeoffD]

It depends on his tax bracket and what's going on with state income taxes. At 4%, the mortgage payment would be about $1,570. If you're in the 28% tax bracket and your state income taxes are high enough that you're already itemizing, the tax deduction brings it to $1,130. You still have property taxes and homeowners insurance to pay but the mortgage would be less than rent.

[Parsec]

Originally Posted by GeoffD

It depends on his tax bracket and what's going on with state income taxes. At 4%, the mortgage payment would be about $1,570. If you're in the 28% tax bracket and your state income taxes are high enough that you're already itemizing, the tax deduction brings it to $1,130. You still have property taxes and homeowners insurance to pay but the mortgage would be less than rent.

Good point. We don't know if the $1200/mo is his actual payment or his after-tax equivalent after the mortgage interest deduction. I've never heard of anyone talking about their mortgage payment in after-tax dollars though.

[Boston_Burbs]

Originally Posted by Parsec

You're missing one important piece of information: What type of loan did he get? Fixed, variable, 30-year, 40-year? What's clear is he did not get a traditional 30-year fixed rate mortgage and his payment does not include escrows for property taxes and homeowner's insurance.

Using the google mortgage calculator comes up with a couple possibilities. A 3.25% fixed rate 40-year mortgage for $329k equals $1226/mo in payments. Another possibility is a 30-year ARM at 2% during the initial period, which results in a $1216/mo payment. Obviously his payments will go up after that initial period is over though. If he did get a 30-year fixed rate mortgage at say 4%, then he would need a $140k down payment ($250k loan) to have a $1194/mo payment without escrows.

I love playing with these calculators. I'm always trying to figure out what I need to put down to lower my payment or decrease my loan term. Once I did a cash-in refinance after getting a huge bonus in order to decrease my loan terms (e.g. refinance from a 30-year to a 15-year fixed rate) while keeping the same monthly payment.

I am currently playing with the numbers to try and go from 30 to 20. Just need that 20 year rate to drop a little more.

[Boston_Burbs]

Also, to the OP.

Some financial sites include mortgage principal as savings and not expenses.

So if you do a rent vs. own comparison its is (mortgage interest+insurance+property taxes+maintenance+utilities) vs. (Rent+insurance+ utilities). This could be where the difference is.

[Whatsnext75]

well i think his like one of the lowest mortgage payments I've heard of in a while.