I am sure others have done this, and want to make sure I am not missing anything.
I have the ability to put down as little as possible…e.g., 5% via conventional loan 30 year mortage. Let’s say the home is $300k. I know that I will have PMI until I hit 20% payoff.
Percent Amount 5% 15k 20% 60k 95% (basically the money I would have remaining) 285k
So, let’s say I invest the difference between the 5% and 20%….that’s 45k. Let’s say PMI is ~$50/month ($600/yr) (this is a huge assumption, but let’s see where the breakeven is).
Let’s say I make net 7% yearly in the markets via S&P500 investments.
Therefore, 45k is the amount I invest, and I will end up with 45k * 1.07 = 48,150 – 600 = $47,550.
I also get my monthly payments will be larger with 5% vs. 20%. Let’s say that difference is ~$400 (Zillow said my monthly payments would be 1800 vs 1400)…so that is $4,800/yr….this comes to: 47,550-4800 = 42,750 (say 43k).
So now, of that 45k “advantage” I had, I am now down to about 43k. HOWEVER, I still have 43k at the end of the year, whereas with a 20%, I wouldn’t have that.
FINALLY, there would be more money going to INTEREST with the 5% down vs. 20%….however if interest rates are, let’s say 2.8% for the 5% down and 3% for 20% down….shouldn’t I see it as only a 0.2% difference net? i.e., if I am already investing the rest, the 0.2% is meaningless so I shouldn’t even worry about that, even over a 30 year time period.
Am I missing anything? Did I mess up the math somewhere? Even if PMI was higher, I would STILL have the money that I did not have with the 20%.