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Blog by Philip Jones

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The Down Payment Conundrum

THE DOWN PAYMENT CONUNDRUM

Perhaps no single decision in a real estate purchase has more possible variables than "How much money should I put down?"  Conventional wisdom centers on either putting down as much as you can or as little as the lender allows. 

If you provide a large down payment, you get some leverage with the lender:  little or no mortgage insurance, a good equity position, and perhaps a preferred mortgage deal.  You will also have lower mortgage payments.  One disadvantage of a large down payment is that you will be using after-tax dollars on which you could be earning interest.  You will also have less tax-deductible interest.

The advantages of a low down payment are not insignificant.  You will have more tax-deductible interest, and your investment value percentage will increase faster.  Contrary to the effects of a large down payment, you will have little equity at the outset, and your payments (and perhaps your interest) will be higher.  You will also keep more of your own money in hand for future repairs, improvements, or to potentially earn more interest in other investments.

I will be happy to help you consider all these variables.

 

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