- Interest rates drop
- You reach 20% equity
- You get below the jumbo limits
- Your plans change
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The lifetime interest for that loan would have been $438
In the past few years there’s a good chance all four of these things have happened for many of you.
Dr. Smith bought her home using a 100% financed physician mortgage loan at 4.75% in ount was $500,000 with monthly principal and interest payments of $2,. Fast forward three years to today and Dr. Smith’s property has appreciated to around $600,000 in value and she owes $475,712 on her original mortgage.
When she bought the home, she had no cash to put down and very few options. The physician mortgage loan was probably her best bet. But now that she has over 20% equity and a healthy earnings history, all sorts of options have opened up. Odds are she’d be able to qualify for the best deal around.
If she had the initiative to refinance and wanted to keep the payment similar to the one she was already used to, she’d be looking at a new 20-year fixed mortgage at 3%. The monthly principal and interest payment on the $475,712 new mortgage would come up to $2,. More importantly, she’d be shaving seven years off her repayment term with only a $30/mo increase in payment. Now that’s a home run!
She could also consider refinancing into a new physician mortgage loan. That would have been better, but nowhere near as appealing as the conventional mortgage. She’s now in the sweet spot for traditional mortgages and she should take advantage of it.
And remember, while refinancing into a new physician loan may be a good deal, it’s not always the best one. Doing your homework before refinancing your physician mortgage loan will pay off. Ideally, you also have someone, like a financial planner, who can help you analyze your options objectively.
Perhaps by now, you’re more excited than ever about buying a house, especially now that you know an option exists where you can get a home with $0 down and no PMI. However, in order to cover all my bases, I did want to point out that you should probably stay away from physician mortgage loans if any or all of these conditions apply:
- The ease of getting a physician mortgage loan is tempting you to consider buying too much house
- You have (or will have) at least 20% to put down on the home. In this situation, a conventional mortgage is best.
- You’re in the military. In this situation, look at a VA loan instead
- You expect a large influx of cash shortly after buying and are using the physician mortgage to get the deal done now
- You aren’t comfortable with the prospect of starting out 5-10% underwater on your home (in other words, you don’t want to write a big check to get out of it if your circumstances change)
Alternatives to Consider Before Signing
In my opinion, it’s best to wait until you have at least 20% to put down on the home. That way, you’ll to get the best deal possible. Plus, you don’t have to take on any of the risks that come with financing anything 100%.
If you like that idea, go ahead and rent for now and start stashing away some cash in preparation for buying your first home. If you already own a home and plan to upgrade, the best way to save for your future down payment is by paying your current mortgage off more quickly. You might even consider refinancing your current mortgage into a shorter term to get used to monthly payments. You can also structure the new loan so that it allows you to build equity to the amount necessary to have 20% by the time you plan to upgrade.
