If you’re thinking of purchasing a home in the near future and have already picked the number in your mind of how much you’re going to put down, stop right there. Take a moment to understand these 4 reasons to put a large down payment on your mortgage. Then re-think your number.
1. Lower monthly mortgage payment
The more you put down, the less your monthly mortgage payment will be. This is because you are no longer borrowing as much money, so your smaller mortgage amount means a more affordable monthly payment.
2. Potentially eliminates PMI
In the lender’s eyes, if you put less than 20% down you’re deemed a risk. To help minimize the potential of you defaulting on your loan, lenders require borrowers to pay private mortgage insurance (PMI).
On conventional loans, this PMI drops off when you reach the 20% mark. On FHA loans, the insurance stays with you through the life of your loan.
PMI isn’t necessarily negative, but knowing about it in advance will help you make the right decision for you and your financial situation. Eliminating it is just another way to save money on a monthly basis.
3. Minimized interest
More money down proves to the lender you’re not a risk which in turns allows you to earn a more favorable interest rate. The lower the rate the less money you’ll pay in interest over the life of the loan. You might be surprised at how much extra you’ll save in interest by slightly increasing your down payment.
4. More equity immediately
If you’re purchasing a home, wouldn’t you want to own more of it rather than less? The more money you invest in your down payment upfront means you instantly have more equity in it. This is a great way to diversify your investment.
Play it smart
Although having a larger mortgage down payment may be tough at first, it will put you in a better position financially for your future. Just remember it’s not the end of the world if you put less down so you can finally own your very own home. The key is to just play it smart.