Million-5 Zero Down

We are helping a couple sell their home and purchase a majestic custom home for $1,500,000.

A million-and-a-half dollars.

Zero down.

Husband and wife are both doctors earning substantial income, and they have substantial savings.

The mortgage will give them a significant tax cut.

More important, their cash will keep working at a high rate of return.

Think about it for a moment...

Their average annual return on their investment portfolio over the past decade was twelve percent (12%).

The mortgage interest rate is six and a quarter percent (6.25%).

Their after-tax interest rate on their mortgage will be around four percent (4%).

Why would they take cash earning 12% out of their investments for a down payment when they can finance the down payment at an after-tax rate of 4%???

If they did so, they would lose 8% per year on the cash they put down.

If they put down, say, $400,000 in cash and financed $1,100,000, they would lose $48,000 in return on their investment.

The savings derived by reducing the loan by $400,000 would be just $16,000.

Bottom line, take the $48,000 lost investment return, then subtract the $16,000 mortgage savings, and you'll plainly see that making a large down payment will cost them $32,000 a year.

They will lose $32,000 a year if they make a $400,000 down payment.

A zero down home loan will maximize their return on investment.