Is it ALWAYS best to put least amount down?

[Anthony King]

What is the best way to compare mortgage options if the down payment and interest rate are dissimilar? I know a lot of people say to put the least amount of your own money into the deal as possible, but that can't always be the case.

For example I have two commercial lenders who have approved my purchase on a 16 unit multifamily.

Lender A wants 20% down, 6.6% interest on a 20 yr amortization.

Lender B wants 25% down, 5.91% interest on a 20 yr amortization.

Do I look at IRR or ROI at some point in the future to compare the two? Or something else?

If the 20% down option had an 9% interest rate, you'd probably be better off with the 25% down and 5.91% right? At some point the higher rate stops being worth the lower down payment, but how do you know when?

Thanks for the help!

[Joe Villeneuve]

Quote from @Anthony King:

What is the best way to compare mortgage options if the down payment and interest rate are dissimilar? I know a lot of people say to put the least amount of your own money into the deal as possible, but that can't always be the case.

For example I have two commercial lenders who have approved my purchase on a 16 unit multifamily.

Lender A wants 20% down, 6.6% interest on a 20 yr amortization.

Lender B wants 25% down, 5.91% interest on a 20 yr amortization.

Do I look at IRR or ROI at some point in the future to compare the two? Or something else?

If the 20% down option had an 9% interest rate, you'd probably be better off with the 25% down and 5.91% right? At some point the higher rate stops being worth the lower down payment, but how do you know when?

Thanks for the help!

Almost always with the lowest DP...period...end of story...depending on how far apart the spread between the two the interest rates.  The interest rate is important because it influences the eventual cash flow.  The DP is important because if the property is positive CF, the only cost to the REI will be the DP...and initially, the main role of the CF is to recover that cost.  The lower the DP, the less there is to recover, and the faster you get there.  This is important because your profit begins after your costs are recovered.  The type of property doesn't matter (i.e. SF, MF, etc...), it works the same for all of them.  However, if the interest rates are wide enough apart, even though it may take a little longer to recover with the larger DP, the higher DP might be the better choice.  My Magic Number is 6 months (possibly a year).  If the higher DP can still be recovered in less than a year longer than the lower one (6 months would be a gimme) then maybe I choose the higher DP.  It comes down to the actual number in dollars, and if I took the difference between the two DP's (in dollars, not %%%), and used it somewhere else, could I gain a higher return (again, in dollar$, NOT %%%) than the difference between the two cash flows.  If "yes", then I go with the lower DP.  If "no" then I go with the higher one...but never higher than 25%.  If I have to go over 25% DP I just won't buy the property.

Using your numbers above, and applying them to the same SF property (this is a real property), you get the following:
Assumptions - 
PV/Buy - $200k
CF before Mortgage Pmt applied - $1750/M; $21k/yr

Option w/ Lender A - DP = 20%; I% = 6.6; Term = 30 yrs (the more years the better)
DP = $40k
CF w/MP = $750/m; $9k/yr
Yrs to profit < 4.4 yrs

Option w/ Lender B - DP = 25%; I% = 5.91; Term = 30 yrs (the more years the better)
DP = $50k
CF w/MP = $850/m; $10,200/yr
Yrs to profit < 4.9 yrs