You can see how this all adds up over the lifetime of the loan – Chomesh L'Chinuch

You can see how this all adds up over the lifetime of the loan

You can see how this all adds up over the lifetime of the loan
Chomesh L'Chinuch

You can see how this all adds up over the lifetime of the loan

  • Interest The cost of interest is based on the interest rate, loan balance and loan repayment term
  • Closing costs A one-time, out-of-pocket expense paid at closing, wrapped into the loan balance or wrapped into the loan in the form of a higher interest rate
  • PMI The monthly fee typically paid until reaching 20% equity

The first thing you need to know about physician mortgage loans is that many lenders are willing to lower their fees, especially when they know it’s competitive. On many occasions, our clients get offered discounts once the lenders realize they’re talking to multiple lenders. If you want to get the best deal, make sure it’s clear to the lender that you’re talking with multiple competitors and it’s not a sure shot for them.

Closing costs and interest rates are kind of like a teeter totter: reducing closing costs on a mortgage increases the interest rate – Or if you want the lowest rate possible, you’ll have higher closing costs. You can see how this works in this breakdown from the Mortgage Professor website.

As for PMI, you either have it or you don’t. It’s typically going to cost between 0.3% to 1.5% of the original loan amount per year. A surefire way to avoid PMI is to put 20% down. Some loans, however, like the physician mortgage loan, do allow you to avoid PMI even though you don’t have 20% equity.

Another way to avoid PMI is to get two mortgages one that finances 80% of the deal and the second that covers the remaining debt (up to 20%). But keep in mind that all of these PMI avoidance tactics come with additional costs.

If you’re curious to see how all of these expenses add up in your situation, we’ve got the perfect tool for you. It’ll show you how various scenarios translate into monthly payments, and it also includes estimates for all of the hidden expenses like home maintenance and utilities.

Rates and Costs An Example

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Let’s assume you’re a physician considering a $500,000 home. You have fantastic credit but no cash for a down payment. What are your options for 0% down payment mortgages with no PMI? Here are the most popular with some example rates. These are not actual rates and are examples only:

  • 1) Physician Mortgage Loans: 30 yr fixed rate 4.75%
  • 2) Physician Mortgage Loans: 7/1 ARM 3.75%
  • 3) Conventional : First mortgage (80%) 30 yr fixed 4.25% Second mortgage (20%) Interest only HELOC (prime + .5%)
  • 4) VA Mortgage (must be military): 30 yr fixed rate 4.25%

Which Option Should You Choose?

Physician mortgage loans have the highest interest rate, but it’s locked in. The ARM has a better rate than the 30-year physician mortgage, but the rate becomes variable after seven years. The conventional offers the best rate on the primary mortgage, but the second mortgage has a variable rate.

Assuming you’re not in the military and can’t get a VA Mortgage, you should base this decision on how long you’ll own the home and how much you plan to pay on the mortgage. Let’s go over the best options based on these factors:

  • 0-7 years If you don’t foresee yourself living in the home for at least seven years, the Physician Mortgage Loan 7/1 ARM is often your best option. But, really, if you plan on living in it for fewer than five years, you should be renting.