Physician Loan vs Conventional Mortgage Calculator

What this calculator does

This tool is for physicians, dentists, residents, and fellows deciding between a physician mortgage program and a conventional loan, and for anyone else weighing a small down payment with no PMI against a larger one with PMI. You enter the home price, the down payment and rate for each loan, the PMI rate a conventional lender quoted, the number of years you expect to keep the loan, and what your cash could earn if you did not put it down. The calculator runs both amortization schedules month by month and reports the monthly payment for each loan, how many months of PMI the conventional loan carries, the interest and PMI paid over your horizon, the earnings you give up on the larger down payment, and which loan costs less in total.

Why physician loans exist and what they cost

Physician mortgage programs are portfolio loans: the bank keeps them rather than selling them to Fannie Mae or Freddie Mac, so it can set its own rules. The rules reflect a borrower who has high student debt and a modest income today but a low historical default rate and a steep income trajectory. Three exemptions are typical. The lender waives private mortgage insurance even at 0 to 10 percent down. The lender qualifies student debt on the income-driven repayment amount, or excludes deferred loans, rather than applying a percentage of the balance. And the lender will often close on a signed employment contract up to a few months before the start date.

The price of those exemptions is usually a higher interest rate than a conventional loan would carry with the same down payment, commonly an eighth to three-eighths of a point, and sometimes a jumbo-style pricing structure above the conforming limit. Because the rate premium applies to the whole balance for the whole life of the loan while PMI applies only until the balance falls below 80 percent of the original value, the comparison is not obvious, which is what the calculator is for.

How the math works

Each loan's monthly principal-and-interest payment uses the standard fixed-rate amortization formula, payment = L × r / (1 − (1 + r)⁻ⁿ), where L is the loan amount, r is the annual rate divided by twelve, and n is the number of months. The calculator then steps through the schedule one month at a time, splitting each payment into interest and principal and tracking the balance.

PMI on the conventional loan is charged only when the down payment is below 20 percent. It is computed as the annual PMI rate times the original loan amount, divided by twelve, and it stops in the first month the scheduled balance reaches the cancellation threshold you select. The two thresholds follow the Homeowners Protection Act rules as described by the Consumer Financial Protection Bureau: you may request cancellation when the balance is scheduled to reach 80 percent of the home's original value, and the servicer must terminate PMI automatically at 78 percent, or at the midpoint of the amortization schedule if that comes first. The calculator uses the scheduled balance and the original purchase price, so it does not credit extra payments or appreciation that might end PMI earlier.

The opportunity cost of the down payment is the difference between what the cash would grow to at your chosen return over the holding period and the cash itself, compounded annually. It is charged to whichever loan requires the larger down payment, and both loans are charged for their own down payment so the comparison stays symmetric. Total cost of financing is interest paid plus PMI paid plus that foregone growth. Remaining balance is shown separately so you can see the equity position each loan leaves you in at the end of the horizon.

Worked example

Take the default scenario: a $600,000 home, held for 7 years, with retained cash assumed to earn 5 percent a year. The physician loan is 0 percent down at 6.75 percent for 30 years. The conventional loan is 10 percent down at 6.50 percent for 30 years, with PMI quoted at 0.55 percent of the loan per year and cancelled when the scheduled balance reaches 80 percent of the original value.

• Physician loan: $600,000 borrowed; principal and interest of $3,891.59 a month; no PMI.
• Conventional loan: $60,000 down and $540,000 borrowed; principal and interest of $3,413.17 a month plus PMI of $247.50 a month, for $3,660.67 total.
• PMI duration: the scheduled balance reaches $480,000 in month 94, so PMI is paid for 94 months, or $23,265.00 in total. Within the 7-year horizon, 84 months are paid, or $20,790.00.
• Interest over 7 years: $271,618.28 on the physician loan versus $234,953.78 on the conventional loan, a difference of $36,664.50 in the conventional loan's favor.
• Foregone earnings: the extra $60,000 down would have grown to $84,426.03 at 5 percent over 7 years, so the conventional borrower gives up $24,426.03.
• Total cost of financing: physician loan $271,618.28; conventional loan $234,953.78 + $20,790.00 + $24,426.03 = $280,169.80.

The physician loan comes out $8,551.52 cheaper over 7 years despite the quarter-point rate premium, because the conventional loan's interest saving of about $36,700 is more than offset by $20,790 of PMI and $24,426 of foregone earnings on the down payment. The monthly payment tells the opposite story: the physician borrower pays $230.92 more each month. That gap is why cash-flow and total-cost answers can disagree, and why the horizon and the assumed return matter so much. Switch the preset to a 20 percent down payment, which removes PMI, and the conventional loan wins.

When this comparison is misleading

• You would not actually invest the retained cash. If the down payment you keep would sit in a checking account, set the return to zero. The physician loan's advantage shrinks or disappears.
• Your home value rises quickly. Lenders may cancel PMI early on a new appraisal once you have 20 percent equity, which the scheduled-balance model does not capture. That favors the conventional loan.
• Closing costs differ. Some physician programs charge higher origination fees or require a relationship account. Add any difference to the physician side mentally; the calculator excludes closing costs.
• You plan to refinance. A physician loan at a higher rate can be refinanced into a conventional loan once you have 20 percent equity and a stable income, which caps how long the rate premium bites. Model that by shortening the horizon.
• Reserves matter more than cost. A resident with $60,000 and no emergency fund may rationally prefer the physician loan even in scenarios where it costs more, because liquidity has value the calculator does not price.

Frequently Asked Questions