We understand the first (and often most challenging) step towards buying a new home is saving your down payment. But there are some huge advantages that come with putting down more than the minimum 5%, if you can afford it.
Here are four reasons to make a larger down payment on your next home:
1. No Mortgage Insurance
We realize it’s a big ask, but if you’re able to put down at least 20% of the purchase price, you will be exempt from having to pay mortgage default insurance. Even if you can’t afford to front so much in advance, keep in mind, the more you do put down, the less your monthly mortgage insurance premiums will be overall. For example:
Purchase Price = $350,000 (25-year motorization period)
Down Payment of 5% = $17,500
Mortgage Insurance = $13,300
Vs.
Purchase Price = $350,000 (25-year motorization period)
Down Payment of 10% = $35,000
Mortgage Insurance = $9,765
2. A Smaller Loan Balance
Simply put, the less you borrow, the less you’ll need to pay back. By fronting a larger down payment, you’ll have a smaller loan balance, allowing you to tackle your principal at a quicker rate and pay your mortgage off faster. You’ll also enjoy smaller monthly payments and protect yourself from negative equity.
3. Lower Interest Rates
Making a larger down payment won’t just decrease your loan balance – it will also reduce your mortgage interest rates. Here again, by borrowing less, you’ll accrue less interest, which will ultimately save you hundreds if not thousands of dollars over the lifetime of your loan. Lenders also tend to look favourably on larger down payments as the more you put down, the less your loan-to-value (LTV) ratio. For this reason, they will be more inclined to offer you the best rates available.
Using a mortgage calculator, you can determine the amount of interest you’ll save over the course of your mortgage with a larger down payment.
4. A Leg Up on the Competition
As we mentioned above, lenders like larger down payments as they are an indicator of creditworthiness. As a result, you’re likely to enjoy a quicker mortgage pre-approval process – meaning you can hit the market in search of your dream home that much faster. But lenders aren’t the only ones who appreciate more upfront. In a multiple offer scenario, having a larger down payment ensures you’ll stand out to the home seller – and above other interested buyers.
Are you thinking about buying a home in Edmonton? The Edmonton Broker can help you secure a great mortgage product at a great rate – simply fill out the form below to get started!
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