Question

My dream home is a 5 bedroom, 6 bath bay front villa in Miami Beach, Florida. Its recent listed price was $19,900,000 as of November of 2019. I would put down $3,980,000 as my 20% down payment, leaving me with a remaining balance of $15,920,000. Using the 30 year fixed rate from FRED,my interest rate was 3.3% and the total interest rate paid over the term of the loan is $9,274,875.43 with monthly payments of $69,985,77

If my down payment were to decrease to 10%, my monthly payments would be $78437.78, which is over 8 thousand dollars more than with a 20% down payment. If i paid a 30% down payment, monthly payments would be $61,007.16 and total interest $8,032578.22. These numbers tell me that the down payment has a major impact on my monthly mortgage payments.

If the interest rate decreased to 2.3% , monthly payments would be $61,260.37 which is a significant decrease from having a 3.3% interest rate. If i change the term of the loan from a 30 to a 15 year term, monthly payments would be $112,252 and total interest over the term of the loan would be 4,285,385.95, which is significantly less than what I would pay on a 30 year loan if I am able and willing to pay much higher monthly payments.

The down payment played the biggest role in the total amount paid on the loan and is an important factor in determining the monthly payment amounts. I would definitely try to put as much down as I can on a down payment to decrease future mortgage payments. Even if a potential dream home has unfavorable interest rates, putting more money down would help decrease my monthly payments and interest rates.

Required:

Provide feedback on the above financing method (even the property). Are there any similarities or differences in the above response compared to your own?

Answer 1

Well, as per aforementioned in question, it seems more sort of an ideal scenario for financing an investment in property, reason being, you'll need at least 20% down-payment (typically required) to finance an investment property. While, you're using a conventional loan to finance a single-family investment property. You can do this with a minimum of 15% down payment to 25% (most common) in a desirable scenario, that might impact in minimzing the EMI as well. However, you'll also need mortgage insurance, which may occupy into your rental income.

Bye the way, Current mortgage and refinance rates both 30-year fixed rate & 15-year fixed rate with the lowest interest rates and APR considered them as best and cheaper in a longer horizon.

In my opinion, I strongly agree with the financing method adopted in this question and there's hardly any diffrentiation in my calculation too, that's quite identical.