Module Your Mortgage Plan, explained
Payment, cash and the middle ground
The question: Should I aim for the lowest payment or the least cash?
For: Buyers comparing the options in a Mortgage Plan
The short version
When you compare loan options, two numbers pull against each other: the monthly payment and the cash you bring to closing. A larger down payment or paid points lower the payment and raise the cash. A smaller down payment does the opposite. A seller credit lowers the cash without raising the payment.
There is no right answer for everyone. The lowest payment helps a monthly budget. The least cash keeps savings in the bank for repairs and surprises. The middle ground is the option that sits between them on both: a payment lower than the least-cash option and cash lower than the lowest-payment option.
To weigh them, ask two things: how much monthly room do you need, and how much cash do you want left after closing? Then look at what each step costs. If a few hundred dollars more at closing saves very little a month, the cash may be worth more in the bank.
Worked example
A $300,000 home, three conventional options
Example- 30-year fixed
- Example rate 6.75%
- Taxes $1,500 a year
- Insurance $1,400 a year
| Down | Monthly payment | Cash to close | |
|---|---|---|---|
| Option 1 | 3% | $2,226 | $15,406 |
| Option 2 | 10% | $2,083 | $36,344 |
| Option 3 | 20% | $1,798 | $66,255 |
Option 2 is the middle ground: $20,938 more at closing than Option 1 and lowers the payment by $143 a month; Option 3 asks $29,911 more for another $285 a month.
Example amounts on the $300,000 home. Rates change daily. Your Mortgage Plan shows your own numbers.
Try it
Go deeper
Points are the same trade
Paying points is cash at closing for a lower rate and payment. The question is how long you keep the loan: points pay off only if you keep it past the break-even. See is paying points worth it.
How your Mortgage Plan shows it
Your Mortgage Plan tags the option with the lowest payment and the one with the least cash, and when a third option sits between them on both, it is tagged as the balanced one. The tags are facts, not picks.
Your next step
Step 7 of 16Points and the break-evenDiscount points are money paid upfront for a permanently lower interest rate. They pay off only if you keep the loan past the break-even month.Go to step 7Leave the path: How much to put downWhich option costs least over time