Why Larger Downpayments Payoff

Dated: 01/12/2015

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Posted by on 1/12/15 • Categorized as Feature Stories

Buying a home is often the most expensive purchase a person will make in their lifetime, so it’s obvious why many consider it one of the most challenging decisions they’ve ever faced. Even deciding how much of a down payment to make can leave buyers hung up, as this may be the single largest transaction in the whole buying process. So what’s the right amount to put down? For some, the answer is as simple as whatever you can afford, but if you have the funds, making a larger down payment could pay off greatly in the end, and here’s why:

  1. You’re more likely to be approved

Typically speaking, the more money you pay down, the more likely you are to be approved for the remainder of the loan. Larger down payments are often considered signs of a strong borrower, and guarantee the lender less risk with the loan.

Small House with Stacks of Hundred Dollar Bills on White.

  1. You’ll have a lower interest rate

Due to the lower risk, banks and lenders – both big and small – typically offer lower interest rates for those with a higher down payment and lower loan-to-value ratio. This lower interest rate will save you money in the long run, so why not “invest” your money now?

  1. You’ll be mortgage free, sooner

Facing less debt and lower mortgage payments, you’ll be able to pay off your mortgage in its entirety in less time. Just put the money you save towards extra principal payments. Not only will this help you financially, it can also help you prepare for retirement.

  1. You won’t need mortgage insurance

It’s common practice for lenders to protect themselves by requiring private mortgage insurance (PMI) on loans with less than a 20% down payment. By making a higher down payment, you not only avoiding the hassle of mortgage insurance, you’re also saving yourself the cost of premiums.

  1. You’ll be protected from negative equity

As we’ve all learned over recent years, home values can fluctuate rapidly, in some cases falling just as quickly as they rise. With a larger down payment and a greater percentage of your home paid off, you’re more protected from price decline pushing you into negative equity.

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Rose Villanueva

As a proud member of the Berkshire Hathaway HomeServices Elite Real Estate team, I represent one of the world’s most respected brands. That means you can be assured of receiving exceptional service,....

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