HSH.com released a new tool to help homebuyers more effectively allocate their funds toward the downpayment for a home, showing the changes in mortgage insurance cost that larger and smaller downpayments have, how much that mortgage insurance will cost them over time, and how soon buyers can stop paying MI. Mortgage borrowers may not know that the size of their down payment has a direct impact on their monthly mortgage insurance payments.
"Many homebuyers, especially first-time homebuyers, scrimp and save to get enough funds put together a down payment for a home with the impression that more is always better. Striving for a down payment of a given size may be stressful, and the reality is that a larger down payment may not be necessary," explains Keith Gumbinger, vice president at HSH.com.
The calculator reveals and compares the costs of mortgage insurance using the borrower's present down payment, and shows the changes in MI and loan costs when a smaller or larger down payment is employed. In doing so, it reveals to the borrower three key items:
1. Exactly how much more downpayment is needed to get into a lower cost MI bracket.
2. Exactly how much more the MI cost would be if a smaller downpayment moved a borrower into a higher-cost MI bracket.
3. The exact amount of cash borrowers can hold back from their downpayment, while keeping the MI cost the same. With this information, borrowers can allocate those funds toward closing costs or perhaps lowering the interest rate on their loan.
Knowing these figures allows the borrower to make a sensible choice in the allocation of savings and shows the effects of these "asset allocation" choices, both today and until the MI policy comes to an automatic cancellation point.
“The Down Payment Decisioner Calculator allows you to see these choices and costs without needing to do a lot of complicated math or call a mortgage lender to run the figures for you,” says Gumbinger. “Most borrowers probably don't know that there may be a sweet spot for their situation where they not only have plenty of funds for a down payment, but also can repurpose some of that cash to cover costs or even pay a point to lower the interest rate on their loan."