Should you use a large down payment of more than 20% on your mortgage? Many Orange County realtors will tell you that with interest rates so low, you don’t have to worry about making a low down payment on your mortgage while others will tell you a variety of reasons why you should make a large down payment on your mortgage including the following:
Lower Mortgage Payment
The first reason why you should make a large down payment on your mortgage is that it provides a lower monthly mortgage payment and you could save thousands on interest over the lifetime of your mortgage.
Example: If you were to get a 30-year mortgage with an interest rate of 5% and you put an extra $10,000 down, you would save just over $9,000 on your mortgage.
A Better Interest Rate
The next way you can save money by putting down a large down payment on your mortgage is a lower interest rate. A lender will give you a low interest rate because they will be taking less of a risk on your loan. This down payment assures the bank that you have “skin in the game” by paying for more up front and getting it paid off quicker.
No More Mortgage Insurance
Borrowers who pay less than the traditional 20% down payment on their mortgage are typically required to take out mortgage insurance because, this form of insurance protects the lender in case the borrower cannot make their mortgage payments. By putting down 20%, this provides the bank assurance that the homeowner will be less likely to walk away during hard times and will give both sides flexibility to renegotiate the terms if necessary.
What Size Down Payment?
Depending on your credit and personal financial situation you should consider putting a down payment on your mortgage of at least 20 to 30%. Before putting more money down make sure that you completely evaluate your personal financial situation and determine if the extra money that you put down on your mortgage should be used elsewhere like on improvements after you move into your home.
For more information on how large a down payment you should put on your mortgage contact one of the friendly real estate experts at Fred Sed & Associates today by calling us at (949) 272-015.