4 Times Paying a Large Mortgage Down Payment Is Unwise

Mortgage loan agreement formThe size of your down payment can impact the mortgage deal you qualify for. A large one allows you to secure a lower interest rate, showing the lender that you have more skin in the game. If you put down at least 20% of the purchase cost, you can avoid paying private mortgage insurance, which covers the lender—not you. I can also help you build equity on your property much faster.

However, it’s not always ideal to pay a huge down payment when buying a TRNeeds home for sale in Annapolis, Nashville, or anywhere else in America. Letting go of a serious amount of money up front might even be disadvantageous to you.

Here are the best reasons why you should keep your mortgage down payment as low as possible:

1. Owning a House Sooner

Being able to shoulder one-fifth of the purchase price is the best proof that you’re financially ready to be a homeowner. But then again, it might take years before you can save that many dollars. If you want to speed up the process, just pay the minimum down payment required by the lender. Look for mortgages with somewhere around 90% loan-to-value ratios.

2. Enjoying More Liquidity

Your mortgage down payment would turn into equity after the transaction. Although a house is a relatively safe investment, your money would then be tied to your property. In case you need more cash, you can’t easily convert some of your home’s equity into real dollars you can spend. If you like your wealth to be as liquid as possible, don’t put down so much.

3. Funding Home Projects

When buying a fixer-upper, you might need more cash on hand to fund home improvements. After all, you could recoup your expenses (in a way) by asking the seller to take care of the closing costs on your behalf.

4. Diversifying Your Investments

Instead of putting it in your home, you might get a greater return from your cash by investing it elsewhere. This can be a great chance to diversify your investment portfolio. Plus, you would enjoy a higher rate of return on a small mortgage down payment than a big one when your home appreciates.

Loaning more money means paying more interest over time, but the benefit of borrowing less diminishes when current mortgage rates are practically at their lowest. Do the numbers thoroughly to identify the most financially sensible loan decision in your situation before pulling the trigger.