Question

The Johnsons are buying a house that costs $210,000 and can afford a 20% down payment. If the Johnsons want the lowest monthly payment, which loan option would you recommend?
a.
30 year FHA, 3.5% down at a fixed rate of 6.25%
b.
30 year fixed, 20% down at a fixed rate of 6%
c.
30 year fixed, 10% down at a fixed rate of 6%
d.
15 year fixed, 20% down at a fixed rate 5.5%

Answer 1

Compute each loan's monthly payment (approx.) with M = P * (r / (1-(1+r)^-n)), where r = monthly rate, n = months.

House price = $210,000.

a) 3.5% down → loan = 210,000*(1-0.035)= $202,650. 30 yr @6.25% → M ≈ $1,249
b) 20% down → loan = 210,000*(1-0.20)= $168,000. 30 yr @6.00% → M ≈ $1,007
c) 10% down → loan = $189,000. 30 yr @6.00% → M ≈ $1,133
d) 20% down → loan = $168,000. 15 yr @5.50% → M ≈ $1,372

The lowest monthly payment is option b (30-year fixed, 20% down at 6%).