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Thursday, April 28, 2016

Why a Big Down Payment is Better






   The second advantage of a larger down payment is lower monthly payments. Let’s face it, when you get into a home , your paid off car will eventually need to be replaced and you will now have car payments and repairs chipping away at your monthly income. If you are newly married, child care expenses, baby furniture and starting an RESP will come up. You may be able to afford higher monthly payments but you will be better off down the road if you have lower payments.
    The third advantage is a lower CMHC premium rate. The bigger your down payment, the lower the risk to the mortgage insurer and the rate that they charge you.  With 5% down you must pay 3.60% on the mortgage balance. On a home purchase of $350,000 this comes out to a premium of $11,970.  
10% down results in a lower premium of $7560 and if you can make a 20% down payment you can avoid mortgage default insurance and pay $0 .
Down Payment 
Premium
Amount
Savings
5%
3.60%
$11,970
0
10%
2.40%
$7560 `
$4410
20%
N/A
$0
$11,970

  
Finally, the bigger your down payment the smaller your mortgage balance is to start. As a result you will save lots of money over the term of your mortgage.
A 5% down payment will result in a payment over 25 years of $115,381 of interest. 10% down lowers this to $108,042 and 20% down lowers this to $93,786.
In other words, if you can come up with a 20% down payment you will save over $21,000 in interest over term of your mortgage. This is based on today’s historically low interest rates. I’m sure that sometime over the next 25 years rates will go up to the 5.79% that people were paying 6 years ago and they could go higher.
    In conclusion, if you have a chance to put more money down on the purchase of your new home, you should consider it. You can save money big time by doing so. 

for more information on this and other mortgage topics , visit http://davidcooke.ca or call David directly at 403-836-1201
    
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