Many people struggle to make a 20% deposit. But what if you have the ability to file more?

With home prices rising nationally, it's harder than ever to make a 20% down payment on a home. To be clear, a 20% down payment is not always required as some conventional mortgage lenders accept less upon completion. (Some lenders only take 5%, but many charge 10%.) But if you don't deposit 20%, you will be covered by private mortgage insurance, an expensive premium that makes owning your home more expensive.

While many buyers these days struggle to pay a 20% down payment, you may end up in a different boat – one where you've saved enough to pay more than 20% for your home. But should you go that route or stick to 20% when you close?

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Why it is worth paying a higher deposit

The more money you can invest on your home, the less mortgage you will have to take out. That means you spend less on your monthly payments and pay less interest over the life of your loan.

Let's say you buy a home for $ 300,000. If you pay a 20% down payment of $ 60,000 and take out a 30 year fixed loan at 3.2% interest, you have a monthly payment of $ 1,038 in the principal and interest on that loan. And you'll be spending a total of $ 133,839 on interest when you pay off your home.

Let's say you have enough cash to pay a $ 80,000 down payment on the same house. In this situation, you are left with a monthly mortgage payment of $ 952. You'll also be spending $ 122,687 on interest while paying off your home. That's a nice sum of savings.

Why you shouldn't pay a higher deposit

While a larger down payment will lower your monthly mortgage payments and save you money on interest over the life of your loan, mortgage rates these days are extremely competitive and borrowing cheap. So if there was ever a time to borrow more money for a house, it is now.

Even if you pay a larger down payment, you end up tying up your money in one house instead of letting you access it yourself. For example, suppose you pay more than 20% down payment but want to renovate in two years. At this point, you may need to borrow money to finance your home renovation, and the interest rate on a home renovation loan can be higher than today's mortgage rates.

Likewise, you could find yourself in a situation where you need money to pay for home repairs or something that has nothing to do with your home at all. At this point, you might regret investing extra cash in a down payment if you could stick with 20%.

What's the right call?

With mortgage rates so low right now, you may want to stick with a 20% down payment on your home while giving yourself more financial flexibility. However, if you can make a down payment of more than 20% and still have enough cash for emergencies or other purposes, you can make your monthly mortgage payments more manageable and spend less money on interest. And in this situation, investing more than 20% wouldn't be the wrong way either.

source https://seapointrealtors.com/2021/07/24/should-you-put-down-more-than-20-on-a-home-if-you-have-the-cash/

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