Mortgages

Your Mortgage Downpayment

Down Payments arent completely unavoidable but they are beneficial in home buying. Its a good idea to home shop way before you are ready to buy to determine what the price range is for the home you may want to buy someday.

Then design a plan to save twenty percent of that targeted area. Even if you dont exactly save that amount, any amount is beneficial when its time to buy.

The larger the down payment means the larger the benefit. Lets face it. Lenders are taking a risk in lending money to borrowers. They risk the chance of not being paid back and having to foreclose on the home. Its proven that borrowers who invest money into the home upfront are less likely to default on their mortgage than those who invest nothing.

Interest rates directly reflect risk. The less risky you are the lower the interest rate. So the higher the down payment, the lower the interest rate. This can save you thousands in interest that you would have otherwise paid with a higher interest rate.

Another benefit is that you reduce the amount of principle you finance which means less money that interest is accrued on. Again, the larger the down payment means the larger the benefits. This alone can save you thousands of dollars but can even save you more money with the benefit of a lower interest rate as stated above. Are you getting the big picture yet?

The last benefit that we are going to mention is avoiding PMI. A 20% down payment will exclude you on having to pay Private Mortgage Insurance.

Although the insurance is mandatory on any mortgages that do not provide the 20% down payment, the amount you pay in PMI can be lowered as the amount of down payment increases that is below 20%. This benefit along with the two talked about above can save you a very significant amount of money. It is definitely worth the investment.