Q: How much down payment should I make?

20% down avoids PMI (private mortgage insurance, typically $50-200/month) and gets you the best interest rates. However, 20% isn't always optimal — if your investments earn more than your mortgage rate, a smaller down payment + investing the difference can be financially better. FHA loans allow 3.5% down; conventional loans typically require 5-10%.

Q: What is PMI and when can I cancel it?

PMI (Private Mortgage Insurance) protects the lender if you default. It's required when your down payment is less than 20%. PMI typically costs 0.5-1% of the loan amount per year ($50-200/month on a $200,000 loan). You can request PMI cancellation when your loan-to-value ratio reaches 80% (you've paid off 20% of the home's value).

Q: Should I get a 15-year or 30-year mortgage?

30-year has lower monthly payments but you pay 2-3x more total interest over the life of the loan. 15-year has higher payments but saves tens of thousands in interest and gets you a slightly lower rate. A hybrid strategy: get a 30-year (for flexibility) but make extra payments as if it were a 15-year — you keep the option to fall back to lower payments if needed.

Question 1

How is a mortgage payment calculated?

Accepted Answer

Monthly Payment = Loan Amount × (r × (1+r)^n) / ((1+r)^n - 1), where r is monthly interest rate and n is number of payments (e.g., 360 for 30-year). This gives principal + interest. Add monthly property taxes (annual tax / 12), homeowner's insurance, and PMI if down payment < 20% to get the total monthly payment (PITI).

Question 2

How much down payment should I make?

Accepted Answer

20% down avoids PMI (private mortgage insurance, typically $50-200/month) and gets you the best interest rates. However, 20% isn't always optimal — if your investments earn more than your mortgage rate, a smaller down payment + investing the difference can be financially better. FHA loans allow 3.5% down; conventional loans typically require 5-10%.

Question 3

What is PMI and when can I cancel it?

Accepted Answer

PMI (Private Mortgage Insurance) protects the lender if you default. It's required when your down payment is less than 20%. PMI typically costs 0.5-1% of the loan amount per year ($50-200/month on a $200,000 loan). You can request PMI cancellation when your loan-to-value ratio reaches 80% (you've paid off 20% of the home's value).

Question 4

Should I get a 15-year or 30-year mortgage?

Accepted Answer

30-year has lower monthly payments but you pay 2-3x more total interest over the life of the loan. 15-year has higher payments but saves tens of thousands in interest and gets you a slightly lower rate. A hybrid strategy: get a 30-year (for flexibility) but make extra payments as if it were a 15-year — you keep the option to fall back to lower payments if needed.

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