As a physician, you have an easy way to add $1M in the next 30 years than most people don't have access to: using a physician loan.
A physician loan is a special program that allows physicians to access a mortgage with less restrictions. The main restriction you avoid is to put down 20%. Instead, you're allowed to put down 0 to 10% (5% is common) and you're not required to pay for PMI, a kind of insurance conventional mortgages required when down-payment is lower than 20% that protects the lender in case you default.
Let's say you buy a $1,500,000 home with a 30 yr fixed mortgage and let's look at 2 options.
1. You can get a conventional mortgage with a 20% down-payment ($300,000). You'd get a $1,200,000 mortgage ($1,500,000 minus down-payment). A $1,200,000 30yr fixed mortgage at 6% will have a monthly payment of $7,195. After 30 years you would have paid $2,590,200 ($7,195/mo x 360 months).
2. You can get a physician loan with 5% down-payment ($75,000). You'd get a $1,425,000 mortgage ($1,500,000 minus down-payment). The interest rate is likely to be 0.25% higher so interest will be 6.25% and your monthly payment would be higher because the mortgage and the interest rate are higher. You'd pay $8,774/mo. After 30 years, you would have paid $3,158,640, more than scenario one.
But in this scenario, because the down-payment was $75,000 instead of $300,000, you get to keep the difference, $225,000. If you invest $225,000 for 30 years and assume a 7% rate of return you'll end up with $1,712,757. After 30 years, even though you paid more for your house, you also get to grow your money. Because of that, the total cost of buying your home is $1,445,883, roughly $1M less than scenario 1.
3. Other considerations:
- The investment returns discussed aren't guaranteed. The lower monthly payment is scenario 1 is guaranteed.
- You might feel uncomfortable investing in the stock market and $1M isn't worth not sleeping at night for 30 years.
- For me, the biggest advantage scenario 2 provides is liquidity. In order to get liquidity in scenario 1, you need the bank to agree to loan you the money you put down. In scenario 2, even though you're investing for the long term and the math discussed above only works if you leave your money invested, you'll have access to your money when something unexpected happens in your life.
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Marcos
These are hypothetical situations based on real life examples. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.