There are two schools of thought on which is better, a large down payment or placing the smallest down payment possible is the best choice. In this post the reasons for putting the largest amount down will be explored when shopping for a mortgage. Our Toronto mortgage broker has some very good reasons for making as large a down payment especially if you consider the long term financial savings.
If you have a relatively low annual income making a large down payment will shrink the size of your mortgage reducing your monthly payments. A smaller down payment will have lenders scrutinizing your employment and credit history much closer to see how likely you are to continue paying your mortgage. If you have a few late payments in the past or even a parking ticket that’s gone to collections will have lenders thinking twice before approving a mortgage with a smaller down payment. Increasing that down payment to 10% will having them looking at your application in a very different light. Having “ skin “ or more money in the game shows you are committed to your part in home ownership. If it’s at all possible consider putting 20% or as much as possible for a down payment.
A larger down payment means lower monthly payments each month allowing you to take care of unexpected expenses that come up. Car repairs, the need to purchase a new appliance for your home, there are always unforeseen expenses. If you’re newly married starting a family may be in your plans, keep in mind monthly income may be reduced even child care expenses will add to the budget. Having more cash flow with smaller monthly payments will allow you to plan an nice vacation or buying a new vehicle.
Mortgage default insurance is another monthly expense you’ll face if the down payment you place is less than 20%. Those homebuyers with a sizable down payment are not required to purchase mortgage default insurance. Even with 10% down payment your premiums will be much more affordable than if you only put 5% for a down payment. Your large down payment is equity in the home and as such is considered an asset, and if you look to the long term a substantial amount in interest will be saved over the term of your mortgage plus you’ll own your home sooner.
Budgeting to consider property taxes, being out of work, any unforeseen situations that may arise are other good reasons for having lower monthly payments with the largest amount down payment you can gather. Rakhi Madan Mortgage Agent says to keep the points listed above in mind when you’re considering the size of your down payment.