Buying a home is probably the biggest financial decision most
people will make in their lifetime. The percentage of down
payment you put in will make a huge difference for the health of
your personal finances for years to come. What percentage of
down payment you should choose is largely dependent on the
current mortgage rate.
20% Down Payment
It's common for a lender to require 20% down payment from
homeowners for mortgage financing. The initial payment does look
hefty, but the homeowners won't be required to purchase mortgage
insurance at least. If the mortgage rate is high, large
percentage of initial down payment will reduce the total cost of
home ownership over a course of 15 or 30 years of your mortgage
payment unless the rate is so high that you know for sure you
will refinance or remortgage in a few years.
0% Down Payment or 100% Mortgages
When economy is slow and the mortgage rate is low, it is
possible to obtain 100% mortgages that cover the full value of a
property, without the requirement of a down payment.
100% mortgages are designed particularly for first
time homeowners who do not have a deposit available. If the real
estate market falls in coming years, you may end up owing more
money than your house is worth. In a rising property market, the
value of your property make quickly exceed the amount of
mortgage you own.
Cash Back Mortgages
In a slow real estate market, some lenders are even pushing for
A cash back mortgage for borrowers with good credit ratings and
the backend of a reasonable personal wealth. Borrowers can
borrow the amount of money that is more than the value of the
property they'll purchase. This is even more common for mortgage
refinance when the mortgage you own is only a small amount of
the value of the property.
Some homeowners may put the extra cash injection into home
improvement, while other actually put the cash in low-risk
investment (such as S & P 500 index fund) and hope to make some
money from the investment as the economy and stock market and
recover.
It's easy and handy for anyone to compare the pros and cons of
each option with a mortgage calculator. It's strongly
recommended to consult a experienced personal financial planners
especially if you are thinking of more risky 100% mortgages or
cash back mortgages.
About the author:
Natalie Aranda is a freelance writer. She writes about business,
travel and family. She contributes to
1st Direction
Mortgages.
