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Figuring out a reasonable down payment t

Dr. Don TaylorDear Dr. Don,
I am considering a home loan for $100,000. I'm trying to figure out the down payment amount. Is there a rule of thumb that shows how much each $1,000 you put down would bring your monthly note down? (By approximately how much?) As a standard, please use a 30-year fixed-rate loan at 7 percent. I'm sure this info is somewhere, but I cannot locate it. Thanks for your help. -- Patricia

Dear Patricia,
I understand your confusion. It's hard to keep things straight in your head when there's so much going on in a mortgage loan transaction -- especially if you're buying a new home.

Use Bankrate's mortgage calculator to come up with your rule of thumb. That way you can change the numbers if interest rates fluctuate.

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Input $1,000 as the loan amount, 30 years as the loan term, and your interest rate -- in this case 7 percent. The calculator will spit back a payment number of $6.65. That means for every extra $1,000 you put as a down payment, your mortgage payment will drop by $6.65.

The cool thing about this approach is that you can also use the $6.65 number times the loan amount (in thousands) to figure out your mortgage payment.

For example, if you put $30,000 down and have a $70,000 loan, your mortgage payment will be approximately 70 x $6.65, or $465.50. It's approximate because there's some rounding when you only use two decimal places in the cost per thousand. The actual payment will be $465.71.

It's good to remember that this only considers the principal and interest components of your monthly mortgage payment. If you're paying private mortgage insurance (PMI) or if you make monthly payments into an escrow account for homeowners insurance and property taxes, your total monthly payment will be higher.

-- Updated: March 26, 2003




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