High or low down payment on mortgage?

As an investment, is it better to put down 20%+ on a home loan?.....or put a minimum down payment of 10% down and invest the remainder somewhere else?

With a big down payment, you're making a nice long-term investment, in that you'll get a better interest rate on your loan.

I usually tell my customers to put down the 20% if is not all they have. You have to ask yourself whether or not you have enough money to buy furniture, garden items (mower, hoses etc) humidifiers, dehumidifiers etc. MAny first time home buyers put their hard saved 10% down only to realize they do not have enough money to repaint the house or put enough furniture in after living in an apartment. If you can do it and still have money leftover then put down 20%. Good luck.

Hello -

How disciplined are you, and do you currently have a financial plan for your future?

There is a great debate within the inner-mortgage circles these days. Should we, as loan professionals, encourage clients to borrow as much money as possible? Or would consumers benefit more if we helped them to understand the advantages of 15-year amortization schedules and pre-paying principal? Let's examine the pros and cons of both strategies.

Leveraging Your Property. In order to understand why you'd want to borrow as much as possible for your home purchase, you must first grasp the concept that equity has a zero rate of return. Here's an example:

If Consumer "A" buys a home for $300,000, and puts 20% down, then they have $60,000 in equity. Over the next 5 years, the property appreciates $100,000 in value. Consumer "A" now has $160,000 in equity.

Consumer "B" buys a home for $300,000, and puts no money down. At the end of 5 years, that same home is now worth $400,000. Consumer "B" has $100,000 in equity, which is the same appreciation as Consumer "A", a net $100,000.

As you can see, your down payment has nothing to do with your rate of return. What becomes important is how you choose to manage the $60,000 you didn't use as a down payment. If you use it for frivolous activities, such as buying toys or going to Las Vegas, it would be more prudent for you to use that money as a down payment. Especially since this will enable you to obtain a lower interest rate.

However, if you were to invest the $60,000 in a vehicle that can out-earn the cost of that debt, then this could be a formula for success. This is why some lending professionals suggest putting as little down as you possibly can, maximizing your tax write-off, and investing the rest. This principle has been applied for many years in the life insurance game. The old saying goes, "Buy term and invest the rest." The key component is taking the money you would have used as a down payment and creating an asset accumulation account. This account should earn a significant enough rate of return to enable you to pay your mortgage off entirely and achieve the ultimate goal of being debt-free.

Paying Your Home Down Rapidly. There are very few times over the course of my career that I have seen a client with zero debt and no financial difficulties. Choosing to pay off all of your debt can reduce stress and help you to gain freedom of cash flow for investment opportunities. A 15-year mortgage or a bi-weekly payment strategy provides structure. It can also put you on track to have your mortgage paid off within a set timeframe. Simply put, it contains built-in discipline.

It's important, however, to understand that regardless of how rapidly you pay your home off, you're not getting any greater rate of return on your investment than if you paid it off slowly.

Conclusion. So how does one determine which scenario is best? The choice depends entirely upon the individual. Savvy consumers who are disciplined, and are comfortable taking chances from an investment perspective, would do well with the first scenario. Over the course of time, it's been proven that your rate of return over the long-haul will be far greater than the rate you'd pay for a mortgage in today's rate environment. It's important to seek the advice of a skilled investment advisor to ensure success with this strategy.

The second scenario is best for those who have a difficult time managing their money or who'll sleep easier at night knowing they have a plan in place to pay their loan off more rapidly. Be sure that your budget can handle accelerated payments. When consumers "bite off more than they can chew" with a 15-year mortgage, they frequently end up having to refinance back into a 30-year schedule.

If you find this subject intriguing and would like to know more, I recommend that you read a book titled, Missed Fortune 101, by Douglas Andrew. It's an outstanding read that is very simplistic and goes into far greater detail than I can cover in this column. Douglas is a financial planner who advises safe-structured investments such as whole life policies and tax-free fixed income instruments.

Darren Meade is affiliated with Victory Mortgage Lenders. If you would like to obtain a FREE CD Interview with financial planning expert and best-selling author, Douglas Andrew, please contact Darren at 866-676-4325.

With the way the real estate market is acting right now....its best not to put anything into a mortgage. In many places, property values are receding or staying flat.
If you are looking for quick appreciation in a hot housing market, put as much as you can in.
If your market is not hot, then stay away and find other investments.

As long as you don't have other debts with high interest rate, it makes sense to put a larger down payment for your property.

If the total amount of your savings generated during the life of this loan with %20 down is less than the amount of estimated dividends of that alternative investment and you are willing to take a risk of investing your money elsewhere then you should put %10 down. If you do not know the estimated dividends of the other investment and you are not willing to gamble with your money then your money is safer with %20 down.

This will detemine on your investment goal. But you should always want to invest your money the best way possible. If you are buying this property to rent out, and you can afford the down payment, then you should put a down payment large enough so the rent a greater then the mortgage. But if this is a short term investment that you are gonna buy and sell in a short period of time, then I would recommend putting no money down and just do interest only for three year. That average real estate goes up about 4%. you will make some money if you just fix up the house alittle bit and re-sell it, then you are going to make money.

If you can get a higher return rate for investing your money than you'll pay the bank on the mortgage, you want to invest as much as you can.

If you CAN'T get a better return, you want to put your money into your down payment to knock down the interest rate the bank will charge (hedge your loss).

Personally, I would use the other 10% on ANOTHER down payment for another investment property (as long as you're not terribly depleting your capital reserves). Rent it out for the mortgage payments + expenses, and earn double the equity. =]

Why work for your money when you can have other people's money work for you?

It depends on what area you are talking about, because in some areas you won't get any appreciation, and in other areas, they have 20% a year appreciation. As far as getting the best interest rate on a new mortgage, you'll want to put down 20% because anything less than that and you'll have to pay PMI on top of the regular monthly payment.

Well, I am not an expert-which is who you should probably be talking to about this, but I am very conservative with money matters and I would prefer to put the 20% down on the home loan because that way you are sure to cut your interest payments. But if you have had success investing, then that may be your best option, I know sometimes it is better for people to do this. You should really crunch the numbers and assess the risks (preferrably with a professional) before making a decision.

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