Most people automatically look for the lowest down payment option on mortgages. This knee jerk reaction is not always the best way to go.
A down payment is usually required when obtaining a mortgage. Although there are some down payment free mortgages available, these generally tend to carry higher interest rates than a regular high ratio mortgage. When seeking to obtain the best terms, most options, and lowest interest rates, it is important to have some money set aside with which to make a down payment. In general, the average down payment rate on mortgages currently varies from 0 to 20 percent of the mortgage value depending on the type of loan and if it is guaranteed.
Any time you are getting a loan, the more money you can put into it yourself the better off you will be later. The more money you have to borrow means that there will be greater amounts of interest that will have to be paid in the long run. Also, the more money you can put down on any loan, including a mortgage, generally will mean that the lender will be able to make a better offer with a better plan and a lower interest rate, saving you additional money in high interest costs.
When seeking the lowest interest rate possible, have at least twenty percent of the mortgage value on hand. By being able to put a 20 percent down payment on a mortgage, you will be able to save yourself a ton of money on mandatory private mortgage default insurance and overall interest payments. You will also be able to secure a pretty sizeable portion of the home’s equity for your own use. Obviously, equity is extremely important and the less money you put down on the mortgage, and the more the bank provides, also means that the bank will own more of the house and therefore more of the equity on the house. You will then have no options in the future when it comes to that equity and also will not be able to benefit from the increase in that equity.
So be prepared to have some money set aside when looking for a mortgage. For those with no other options, no down payment mortgages can be found, but just remember what you are sacrificing in the long run. Be smart and be prepared and seek out the best plan for you.
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Rebecca joins the team with over 20 years of business, investment and real estate experience. A true advocate for the consumer, Rebecca brings you unparalleled integrity with unbiased advice. Phone anytime and discover for yourself just how easy and enjoyable the mortgage process can be.
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