3 Advantages of Making a 20% Down Payment on Your Home
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It’s easier these days than it used to be to get a home loan. Traditionally, banks expected everybody to start with a down payment of 20% of the value of the home, no negotiating. But today you can even find finance with no deposit at all. That doesn’t necessarily mean it’s a good thing: here are three reasons why saving up 20% of the cost of your home will help you out financially:
- Owning 20% of your home from the start gives you financial and psychological security. Knowing that the bricks and mortar around you are already more than one fifth yours has been proven to provide greater incentive to manage your finances carefully - fewer people default on loans when they start with a larger down payment.
- If you don’t make a 20% payment to start, you will have to pay private mortgage insurance (PMI). Typically, this will add about 0.5% to the cost of your mortgage, which doesn’t sound like very much but do the figures and you’ll realize it’s a substantial amount over the term of your loan (or at least until you have 20% equity in the house).
- When the housing market is going through serious fluctuations, not starting with a 20% down payment can leave you particularly vulnerable if you have to move or are forced to sell for some reason.You may not even recoup the money necessary to pay off the loan. Starting with a decent portion of equity improves this situation.
This entry was posted on Sunday, May 18th, 2008 at 4:00 am and is filed under Loans & Borrowing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
