Mortgage question: 20% down or larger down payment?

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Faisal
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Mortgage question: 20% down or larger down payment?

Post by Faisal » Thu May 10, 2018 4:03 am

I have asked a few questions earlier about mortgages in the US and everyone has been very helpful. Now that we are deciding to get a place I wanted to know if there was any advantage to a larger down payment vs 20%?

Also I was wondering if there was any benefit to putting down 20% and then over time paying off large percentage of the mortgage as we have the money a few months/years down road instead of say doing a 30 or 40% down payment?

Jags4186
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Re: Mortgage question: 20% down or larger down payment?

Post by Jags4186 » Thu May 10, 2018 6:37 am

Faisal wrote:
Thu May 10, 2018 4:03 am
I have asked a few questions earlier about mortgages in the US and everyone has been very helpful. Now that we are deciding to get a place I wanted to know if there was any advantage to a larger down payment vs 20%?

Also I was wondering if there was any benefit to putting down 20% and then over time paying off large percentage of the mortgage as we have the money a few months/years down road instead of say doing a 30 or 40% down payment?
Larger down payment can sometimes get you a lower interest rate. Also your payment will obviously be lower.

engineer1969
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Re: Mortgage question: 20% down or larger down payment?

Post by engineer1969 » Thu May 10, 2018 6:43 am

Last time I refinanced and played around with the bank's provided calculator, I found that every 5% of equity dropped the rate 0.125%. So, having 70.01% equity had a higher rate than 69.9% equity by 0.125%. After I had locked in a rate, my appraisal came back higher than expected which crossed a 5% barrier. The bank dropped my upfront costs rather than dropping the rate <grumble>.

jacobsta811
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Re: Mortgage question: 20% down or larger down payment?

Post by jacobsta811 » Thu May 10, 2018 9:24 am

In Florida (not sure about other states), the real estate stamp tax is based in part on the price of the house and in part on how big of a mortgage you take out, so a larger down payment means you pay less stamp tax when you purchase the house.

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Thu May 10, 2018 9:28 am

OP,

1) Is it a recourse loan or non-recourse loan?

In a recourse loan, the loaner can go after your asset beyond the house.

2) Do a 20% down payment and 30 years fixed interest mortgage.

Do not tie up too much of your money in the house basket. Think diversification.

KlangFool

MDCrab
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Re: Mortgage question: 20% down or larger down payment?

Post by MDCrab » Thu May 10, 2018 10:57 am

Diversification is key. You can put all your savings in the down payment, which will seriously lower your monthly interest payments. But then too much of your net worth may be tied to the real estate market. That can be risky.

In today's interest rate market, every extra dollar in your down payment can save ~4.5% in interest, which you may be able to exceed in other markets depending on your asset allocation. Don't forget about the tax benefits of mortgage interest payments. What is your bracket? Do you itemize? The new tax law's larger standard deduction severely lower the incentive to do so.

Faisal
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Re: Mortgage question: 20% down or larger down payment?

Post by Faisal » Thu May 10, 2018 11:25 pm

Thanks for all the responses guys.

Preapproval is at 4.5% with 30 year mortgage and 20% down. But then again the preapproval is for an amount much larger than we need. Don't aim to be house poor.

We are aiming for a home around the 500k mark. Our max loan amount is 400k with a 20% down payment but if we want to put bring that loan amount down we can throw another 100k into the downpayment to make the loan amount less.

But then the question is do we put extra money down up front or do we do it after we have put then 20% down, completed all formalities and purchased the home and then we slowly monthly/yearly pay down more principal.

It also does not help that the market is at its peak or what appears to be its peak and people are predicting doom and gloom everywhere.

Cop51
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Re: Mortgage question: 20% down or larger down payment?

Post by Cop51 » Fri May 11, 2018 12:29 am

Just remember your mortgage including taxes and insurance should be 25% of your net monthly income.

Hazel-Rah
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Re: Mortgage question: 20% down or larger down payment?

Post by Hazel-Rah » Fri May 11, 2018 1:43 am

Just do 20% down. There is only a marginally lower interest rate to gain by putting 40% downpayment up-front. You have liquidity to lose by doing it. Recast is usually an option depending on who services your loan.

After a few months you can review if the mortgage + other house expenses is messing up your monthly cash flow. A recast is usually cheap (~$250), it will maintain the original interest rate and payment schedule but allow you to put your extra money towards the principal to lower your monthly payment.

sketchy9
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Re: Mortgage question: 20% down or larger down payment?

Post by sketchy9 » Fri May 11, 2018 9:34 am

Cop51 wrote:
Fri May 11, 2018 12:29 am
Just remember your mortgage including taxes and insurance should be 25% of your net monthly income.
That is incredibly conservative and would likely rule out homebuying for a large percentage of the population.

OP: I put 40% down because, at the time I bought my place, I was working less (with a lower monthly income) so I couldn't afford the monthly payment with a 20% down payment. But, the reason I was working less is because I had burned out from killing myself at work for several years, so I had saved up quite a bit. I kind of viewed it as a way to take advantage of all the work I had done in the past. Nowadays I'm back to working more again, but I don't regret the larger down payment since I'm able to save nearly 50% of my net income in taxable.
Last edited by sketchy9 on Fri May 11, 2018 9:38 am, edited 1 time in total.

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Pajamas
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Re: Mortgage question: 20% down or larger down payment?

Post by Pajamas » Fri May 11, 2018 9:37 am

Cop51 wrote:
Fri May 11, 2018 12:29 am
Just remember your mortgage including taxes and insurance should be 25% of your net monthly income.
Is that true both when your monthly income is $1,000 and $1,000,000? Is that a maximum, a minimum, or an exact amount? What if your income varies? Does it matter what your other expenses are? What if you are single vs. married with four children and a parent living with you that you have to support? Does it matter if it is a one income household vs. a two income household? Does it matter where you live and what housing costs are in the local market?

Those rules of thumb are not very helpful to most people.

FeesR-BullNotBullish
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Re: Mortgage question: 20% down or larger down payment?

Post by FeesR-BullNotBullish » Fri May 11, 2018 10:00 am

I'll offer the minority perspective: I say go larger on the down payment if it leaves you with a healthy emergency fund, and go with a 15 year fixed rate mortgage if you can swing it.

Personally, I wouldn't pay off my house at the expense of tax advantaged investments, but I will put money towards my house principal before funding non tax advantaged investments. Maybe that doesn't make mathematical sense, but I'm one for whom a paid off house will be the greatest feeling in the world and will give me many good sleeps.

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Fri May 11, 2018 10:04 am

Faisal wrote:
Thu May 10, 2018 11:25 pm
Thanks for all the responses guys.

Preapproval is at 4.5% with 30 year mortgage and 20% down. But then again the preapproval is for an amount much larger than we need. Don't aim to be house poor.

We are aiming for a home around the 500k mark. Our max loan amount is 400k with a 20% down payment but if we want to put bring that loan amount down we can throw another 100k into the downpayment to make the loan amount less.

But then the question is do we put extra money down up front or do we do it after we have put then 20% down, completed all formalities and purchased the home and then we slowly monthly/yearly pay down more principal.

It also does not help that the market is at its peak or what appears to be its peak and people are predicting doom and gloom everywhere.
Faisal,

<< Preapproval is at 4.5% with 30 year mortgage and 20% down. But then again the preapproval is for an amount much larger than we need. Don't aim to be house poor.
We are aiming for a home around the 500k mark.>>

Unless your net worth excluding the house is 1.25 million, you are "House Poor" after buying the 500K house.

<<But then the question is do we put extra money down up front or do we do it after we have put then 20% down, completed all formalities and purchased the home and then we slowly monthly/yearly pay down more principal.>>

Why would you want to do that? You are putting more money into the house basket. Do not pay down the principal. Pay it off totally when you can afford to. Think diversification. Think liquidity.

KlangFool

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Fri May 11, 2018 10:09 am

FeesR-BullNotBullish wrote:
Fri May 11, 2018 10:00 am
I'll offer the minority perspective: I say go larger on the down payment if it leaves you with a healthy emergency fund, and go with a 15 year fixed rate mortgage if you can swing it.

Personally, I wouldn't pay off my house at the expense of tax advantaged investments, but I will put money towards my house principal before funding non tax advantaged investments. Maybe that doesn't make mathematical sense, but I'm one for whom a paid off house will be the greatest feeling in the world and will give me many good sleeps.
FeesR-BullNotBullish,

Will you recommend that if the OP's net worth excluding the house and the emergency fund is only 200K?

<<I'm one for whom a paid off house will be the greatest feeling in the world and will give me many good sleeps.>>

How will that works in a recession if someone is unemployed for 1 to 2 years? Lack of liquidity destroyed many folks financially during 2008/2009 recession.

I could pay off my house at any time. But, why would I want to tie up more of my money into the house basket?

KlangFool

Charon
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Re: Mortgage question: 20% down or larger down payment?

Post by Charon » Fri May 11, 2018 10:42 am

Liquidity is a good consideration, but no one is suggesting that people pay down the mortgage with all their taxable, retirement, and emergency funds. Don't forget to also keep some liquid funds for house repairs and improvements! But I definitely favor paying a little more down, and favor shorter loan terms.

Those who are suggesting anything other than the minimum down and 30-year loans is investing folly have much higher risk tolerances than I do, or know of magical funds. Paying down 4.5% mortgage is guaranteed and after tax return of 4.5%, which corresponds to a pre-tax return of 5.75-8.5%, depending on your marginal federal rate and state taxes. If anyone knows of a guaranteed return that high, please let us know!

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goingup
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Re: Mortgage question: 20% down or larger down payment?

Post by goingup » Fri May 11, 2018 10:43 am

If you have an extra $100K to put down on a $500K home (after already putting down 20%) why not consider a 15yr mortgage? Checking a local broker here, I see a big interest rate spread between a 30 and 15 year for conforming loans.

mortfree
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Re: Mortgage question: 20% down or larger down payment?

Post by mortfree » Fri May 11, 2018 10:55 am

I touched on this in another thread but it got locked b/c 2 other individuals were having a sparring match unrelated to the topic... and I didn't get to resolve it.

so here goes. 30 year mortgage; assume all 401k and Roths are maxed; EF of 6 months funded; taxable investments of 100k, etc.

If I pay $260 extra per month on my mortgage for 15 years, my balance will be $65,000 and I would have paid $81,000 in interest.
If I pay $0 extra per month for 15 years, my balance will be $128000 and I would have paid $97500 in interest.

If I save $260 extra per month for 15 years, that would be $46800 after 15 years (0% return).

how do I look at the math to save that little bit extra instead of applying it to the mortgage?

I've also had a realization that I may not get money any cheaper than this in the future so that is a factor too.



I didn't feel this warranted a separate thread and apologies to the OP for interjecting on this one (of many mortgage threads).
Last edited by mortfree on Fri May 11, 2018 11:01 am, edited 1 time in total.

Jags4186
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Re: Mortgage question: 20% down or larger down payment?

Post by Jags4186 » Fri May 11, 2018 11:00 am

KF,

Paid off housing is likely a better deal for someone in your situation--nearing retirement and already practically FI, than someone in the OPs.

Take a 60 year old with a 30 yr $300k mortgage at 4.5% with a $1520 payment:

If you pay off the mortgage you've essentially earned a 6.1% withdrawal rate on this money with a high likelihood that in 30 years your initial investment will be worth more.

If you choose to keep the mortgage and retain liquidity on your $300k, that $300k will likely not be able to support the mortgage over 30 years. 6.1% is too high a withdrawal rate over 30 years and the likelihood of making it through year 30 is pretty low without having to support the mortgage with other monies. Depending on the location of your assets, a FI person might have to withdraw money from tax deferred accounts to support a mortgage, taking on the additional expense of income taxes.

Once your FI, you no longer need the liquidity to stave off job loss. Job loss means nothing.

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Fri May 11, 2018 11:03 am

Charon wrote:
Fri May 11, 2018 10:42 am
Liquidity is a good consideration, but no one is suggesting that people pay down the mortgage with all their taxable, retirement, and emergency funds. Don't forget to also keep some liquid funds for house repairs and improvements! But I definitely favor paying a little more down, and favor shorter loan terms.

Those who are suggesting anything other than the minimum down and 30-year loans is investing folly have much higher risk tolerances than I do, or know of magical funds. Paying down 4.5% mortgage is guaranteed and after tax return of 4.5%, which corresponds to a pre-tax return of 5.75-8.5%, depending on your marginal federal rate and state taxes. If anyone knows of a guaranteed return that high, please let us know!
Charon,

<<Liquidity is a good consideration, but no one is suggesting that people pay down the mortgage with all their taxable, retirement, and emergency funds.>>

Okay.

Would you recommend OP put more money into the house if his net worth excluding the house is

A) 100K?

B) 200K?

C) 400K?

D) 800K?

Please note that this is a 500K house. I just want to understand your position in term of liquidity and diversification.

<<Those who are suggesting anything other than the minimum down and 30-year loans is investing folly have much higher risk tolerances than I do,>>

I have the opposing view. Folks that tie up most of their money in a house is taking a larger risk since most of their money is in the housing basket.

KlangFool

Jags4186
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Re: Mortgage question: 20% down or larger down payment?

Post by Jags4186 » Fri May 11, 2018 11:06 am

mortfree wrote:
Fri May 11, 2018 10:55 am
I touched on this in another thread but it got locked b/c 2 other individuals were having a sparring match unrelated to the topic... and I didn't get to resolve it.

so here goes. 30 year mortgage; assume all 401k and Roths are maxed; EF of 6 months funded; taxable investments of 100k, etc.

If I pay $260 extra per month on my mortgage for 15 years, my balance will be $65,000 and I would have paid $81,000 in interest.
If I pay $0 extra per month for 15 years, my balance will be $128000 and I would have paid $97500 in interest.

If I save $260 extra per month for 15 years, that would be $46800 after 15 years (0% return).

how do I look at the math to save that little bit extra instead of applying it to the mortgage?

I've also had a realization that I may not get money any cheaper than this in the future so that is a factor too.



I didn't feel this warranted a separate thread and apologies to the OP for interjecting on this one (of many mortgage threads).
If you are able to invest your $240/mo savings at a rate greater than your mortgage interest, then you will come out ahead. If you aren't, then you will lose.

If you had the option to invest in a mutual fund that earns 4.5% a year, every year, would you invest your money in it or would you prefer to put money into your overall asset allocation?

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Fri May 11, 2018 11:08 am

Jags4186 wrote:
Fri May 11, 2018 11:00 am
KF,

Paid off housing is likely a better deal for someone in your situation--nearing retirement and already practically FI, than someone in the OPs.
Jags4186,

1) My mortgage is 3.49%.

2) I have 2 kids going to the college now. My annual expense plus college education is 120K per year. I need the liquidity if I am unemployed. It does not make sense for me to pay off the mortgage and then take a student loan for my kids.

By the way, many folks with a paid off house do that for their kids. They chose to pay higher interest on the student loan. Why they do that? I have no idea.

So, it is not a better deal for me.

KlangFool

ytrewq
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Re: Mortgage question: 20% down or larger down payment?

Post by ytrewq » Fri May 11, 2018 11:09 am

You can explore 15-year term for 3.8% interest and zero-points and by buying 3-4 points you can further lower interest rate to 2.99% - 2.87% based on rates this week. Purchasing 3-Points on $400K loan will cost $12K and 4-points on $400K loan will cost $16K and the break-even for points purchased will be approx. 68 -72 months (6 years). You can build an Excel comparison of all options - 30-Year; 15-Year (No Points) and 15-Year 4-Points and see which one works best. Any money not put in house (be it down payment, points purchase fee or difference in monthly payments) is assumed to be invested in index funds earning 5% pre-tax.
Last edited by ytrewq on Fri May 11, 2018 11:13 am, edited 1 time in total.

Jags4186
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Re: Mortgage question: 20% down or larger down payment?

Post by Jags4186 » Fri May 11, 2018 11:11 am

KlangFool wrote:
Fri May 11, 2018 11:08 am
Jags4186 wrote:
Fri May 11, 2018 11:00 am
KF,

Paid off housing is likely a better deal for someone in your situation--nearing retirement and already practically FI, than someone in the OPs.
Jags4186,

1) My mortgage is 3.49%.

2) I have 2 kids going to the college now. My annual expense plus college education is 120K per year. I need the liquidity if I am unemployed. It does not make sense for me to pay off the mortgage and then take a student loan for my kids.

By the way, many folks with a paid off house do that for their kids. They chose to pay higher interest on the student loan. Why they do that? I have no idea.

So, it is not a better deal for me.

KlangFool
Why would you take out student loans for your kids? You're practically FI/RE. If you lost your job, let your kids take out loans and go golfing or fly fishing. You'll "pay them back" when you pass on and they inherit your estate.

Even at your interest rate, you'd be getting the equivalent of a 5.4% withdrawal rate, still better than anyone would recommend out of a traditional portfolio.

The question to ask yourself is: does paying off my house put me closer or further away from FI at the withdrawal rate I am comfortable with? I think for *most* people, it will put them closer to FI than further away.

FeesR-BullNotBullish
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Re: Mortgage question: 20% down or larger down payment?

Post by FeesR-BullNotBullish » Fri May 11, 2018 11:34 am

KlangFool wrote:
Fri May 11, 2018 10:09 am
FeesR-BullNotBullish wrote:
Fri May 11, 2018 10:00 am
I'll offer the minority perspective: I say go larger on the down payment if it leaves you with a healthy emergency fund, and go with a 15 year fixed rate mortgage if you can swing it.

Personally, I wouldn't pay off my house at the expense of tax advantaged investments, but I will put money towards my house principal before funding non tax advantaged investments. Maybe that doesn't make mathematical sense, but I'm one for whom a paid off house will be the greatest feeling in the world and will give me many good sleeps.
FeesR-BullNotBullish,

Will you recommend that if the OP's net worth excluding the house and the emergency fund is only 200K?

<<I'm one for whom a paid off house will be the greatest feeling in the world and will give me many good sleeps.>>

How will that works in a recession if someone is unemployed for 1 to 2 years? Lack of liquidity destroyed many folks financially during 2008/2009 recession.

I could pay off my house at any time. But, why would I want to tie up more of my money into the house basket?

KlangFool

Yes I would recommend that course if OP's net worth excluding the house and the emergency fund is 200k. Your comment is thought provoking because I've never considered how funding liquid assets casts a broad safety net; it's like a secondary emergency fund now that I think of it. That said, I still like putting equity in my house before investing in non tax advantaged liquid assets. Maybe it's because the house is tangible. If I have a paid off house during the next recession I still have it as opposed to the value of my liquid assets that are diminished. If I have a less than paid off house, I will most likely still have equity in it. This gives me a sense of peace that liquid assets do not.

Regarding the prospect of long term unemployment, I can't relate. I don't mean to sound arrogant or insensitive, but I'm confident that I'd be able to trim trim trim and find something to make ends meet. I can imagine circumstances where I'd be grateful for more liquid assets. However, I feel it's a low risk where my decision to over-invest in my house is the cause of my financial ruin.

Regarding your personal circumstance, I'm jealous. We have different mentalities, but if that were me, I'd write that last check and throw my mortgage papers to the flames!

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Fri May 11, 2018 11:37 am

Jags4186 wrote:
Fri May 11, 2018 11:11 am
KlangFool wrote:
Fri May 11, 2018 11:08 am
Jags4186 wrote:
Fri May 11, 2018 11:00 am
KF,

Paid off housing is likely a better deal for someone in your situation--nearing retirement and already practically FI, than someone in the OPs.
Jags4186,

1) My mortgage is 3.49%.

2) I have 2 kids going to the college now. My annual expense plus college education is 120K per year. I need the liquidity if I am unemployed. It does not make sense for me to pay off the mortgage and then take a student loan for my kids.

By the way, many folks with a paid off house do that for their kids. They chose to pay higher interest on the student loan. Why they do that? I have no idea.

So, it is not a better deal for me.

KlangFool
Why would you take out student loans for your kids? You're practically FI/RE. If you lost your job, let your kids take out loans and go golfing or fly fishing. You'll "pay them back" when you pass on and they inherit your estate.

Even at your interest rate, you'd be getting the equivalent of a 5.4% withdrawal rate, still better than anyone would recommend out of a traditional portfolio.

The question to ask yourself is: does paying off my house put me closer or further away from FI at the withdrawal rate I am comfortable with? I think for *most* people, it will put them closer to FI than further away.
Jags4186,

It is not worth my trouble at this stage. They are only one to two years to go.

<<The question to ask yourself is: does paying off my house put me closer or further away from FI at the withdrawal rate I am comfortable with?>>

In my case, the house's PITI is low enough that it won't matter to me. Meanwhile, by not paying off the mortgage, I am moving 60K of my taxable account into the tax-advantaged accounts every year.

KlangFool

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Fri May 11, 2018 11:43 am

FeesR-BullNotBullish wrote:
Fri May 11, 2018 11:34 am

Regarding your personal circumstance, I'm jealous. We have different mentalities, but if that were me, I'd write that last check and throw my mortgage papers to the flames!
FeesR-BullNotBullish,

1) Why would I do that when my portfolio is making 7% and my mortgage is only 3.49%? I am making 3.51% per year by not paying off the mortgage. If and when the circumstances changes, I could always pay off the mortgage.

2) I was unemployed for more than 1 year a few times. I had survived multiple recessions and the economic crisis over 30+ years.

KlangFool

mortfree
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Re: Mortgage question: 20% down or larger down payment?

Post by mortfree » Fri May 11, 2018 6:16 pm

Jags4186 wrote:
Fri May 11, 2018 11:06 am
mortfree wrote:
Fri May 11, 2018 10:55 am
I touched on this in another thread but it got locked b/c 2 other individuals were having a sparring match unrelated to the topic... and I didn't get to resolve it.

so here goes. 30 year mortgage; assume all 401k and Roths are maxed; EF of 6 months funded; taxable investments of 100k, etc.

If I pay $260 extra per month on my mortgage for 15 years, my balance will be $65,000 and I would have paid $81,000 in interest.
If I pay $0 extra per month for 15 years, my balance will be $128000 and I would have paid $97500 in interest.

If I save $260 extra per month for 15 years, that would be $46800 after 15 years (0% return).

how do I look at the math to save that little bit extra instead of applying it to the mortgage?

I've also had a realization that I may not get money any cheaper than this in the future so that is a factor too.



I didn't feel this warranted a separate thread and apologies to the OP for interjecting on this one (of many mortgage threads).
If you are able to invest your $240/mo savings at a rate greater than your mortgage interest, then you will come out ahead. If you aren't, then you will lose.

If you had the option to invest in a mutual fund that earns 4.5% a year, every year, would you invest your money in it or would you prefer to put money into your overall asset allocation?
Thanks for the reply. I’ve looked at this several ways over and over. I listen to KlangFool’s arguments. I have 40% in the house, 40% in Roth/401k and then 20% in taxable savings (cash/stock/cd).

But then I look at the dollar amount of interest and remaining principal and that 63k difference by putting out 48k and also reducing the timeline to another 5 years after that point seems like it’s not something that should be passed up.

Even Investing that $260/month over 15 years barely gets me even with the 63k difference.

It’s not like a car loan where I am paying hundreds of dollars in interest.


I paid off a mortgage before. I know I could do this one too.

Analysis paralysis at this point.

KlangFool
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Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Fri May 11, 2018 8:16 pm

mortfree wrote:
Fri May 11, 2018 6:16 pm
Jags4186 wrote:
Fri May 11, 2018 11:06 am
mortfree wrote:
Fri May 11, 2018 10:55 am
I touched on this in another thread but it got locked b/c 2 other individuals were having a sparring match unrelated to the topic... and I didn't get to resolve it.

so here goes. 30 year mortgage; assume all 401k and Roths are maxed; EF of 6 months funded; taxable investments of 100k, etc.

If I pay $260 extra per month on my mortgage for 15 years, my balance will be $65,000 and I would have paid $81,000 in interest.
If I pay $0 extra per month for 15 years, my balance will be $128000 and I would have paid $97500 in interest.

If I save $260 extra per month for 15 years, that would be $46800 after 15 years (0% return).

how do I look at the math to save that little bit extra instead of applying it to the mortgage?

I've also had a realization that I may not get money any cheaper than this in the future so that is a factor too.



I didn't feel this warranted a separate thread and apologies to the OP for interjecting on this one (of many mortgage threads).
If you are able to invest your $240/mo savings at a rate greater than your mortgage interest, then you will come out ahead. If you aren't, then you will lose.

If you had the option to invest in a mutual fund that earns 4.5% a year, every year, would you invest your money in it or would you prefer to put money into your overall asset allocation?
Thanks for the reply. I’ve looked at this several ways over and over. I listen to KlangFool’s arguments. I have 40% in the house, 40% in Roth/401k and then 20% in taxable savings (cash/stock/cd).

But then I look at the dollar amount of interest and remaining principal and that 63k difference by putting out 48k and also reducing the timeline to another 5 years after that point seems like it’s not something that should be passed up.

Even Investing that $260/month over 15 years barely gets me even with the 63k difference.

It’s not like a car loan where I am paying hundreds of dollars in interest.


I paid off a mortgage before. I know I could do this one too.

Analysis paralysis at this point.
mortfree,

You do not have 40% in the house. The 40% is your home equity. For this kind of analysis, you need to look at the price of the house. So, the house is more than 40%.

For example, let's assume that the house is 200K and the home equity is 100K. And, the rest is 150K. Your net worth is 250K. But, because the house's price is 200K, if it drops to 0, your net worth will be 50K.

Your exposure to the house is 200K. It is not 100K.

If I am wrong in interpreting your statement, please correct me.

KlangFool

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grabiner
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Re: Mortgage question: 20% down or larger down payment?

Post by grabiner » Fri May 11, 2018 8:52 pm

Faisal wrote:
Thu May 10, 2018 4:03 am
I have asked a few questions earlier about mortgages in the US and everyone has been very helpful. Now that we are deciding to get a place I wanted to know if there was any advantage to a larger down payment vs 20%?
Making a larger down payment is essentially an investment which pays a rate equal to the mortgage rate, with returns coming every month (in the form of lower monthly payments). For example, if you have a 15-year loan, making an extra down payment is equivalent to buying a portfolio of bonds maturing in 1-180 months, with a 7-year duration. Is that a better use of your money than investing it somewhere else?

Since paying down a mortgage is a low-risk investment, the fair comparison is a low-risk fixed-income investment with the same duration, such as a municipal-bond fund. However, you give up liqudity; if the liquidity is important, that is a good reason not to pay down the mortgage even if the mortgage rate is higher than the bond rate.

When I bought my home, I put the minimum 20% down because I had a better use for the money. My loan had an APR of 3.213%; the return on an increased down payment would be taxable because I deducted the interest. And my return on a larger down payment wouldn't have even been 3.213% taxable, because I would have had to sell stock for a capital gain.
Wiki David Grabiner

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Re: Mortgage question: 20% down or larger down payment?

Post by corn18 » Fri May 11, 2018 9:45 pm

KlangFool wrote:
Fri May 11, 2018 11:43 am
FeesR-BullNotBullish wrote:
Fri May 11, 2018 11:34 am

Regarding your personal circumstance, I'm jealous. We have different mentalities, but if that were me, I'd write that last check and throw my mortgage papers to the flames!
FeesR-BullNotBullish,

1) Why would I do that when my portfolio is making 7% and my mortgage is only 3.49%? I am making 3.51% per year by not paying off the mortgage. If and when the circumstances changes, I could always pay off the mortgage.

2) I was unemployed for more than 1 year a few times. I had survived multiple recessions and the economic crisis over 30+ years.

KlangFool
KlangFool,

Many other people survived the same recessions and economic crisis and were not unemployed for more than 1 year a few times. There is more than one road to Dublin and they aren't all lined with mines or SWANs.

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Re: Mortgage question: 20% down or larger down payment?

Post by mortfree » Sat May 12, 2018 1:05 am

KlangFool wrote:
Fri May 11, 2018 8:16 pm
mortfree wrote:
Fri May 11, 2018 6:16 pm
Jags4186 wrote:
Fri May 11, 2018 11:06 am
mortfree wrote:
Fri May 11, 2018 10:55 am
I touched on this in another thread but it got locked b/c 2 other individuals were having a sparring match unrelated to the topic... and I didn't get to resolve it.

so here goes. 30 year mortgage; assume all 401k and Roths are maxed; EF of 6 months funded; taxable investments of 100k, etc.

If I pay $260 extra per month on my mortgage for 15 years, my balance will be $65,000 and I would have paid $81,000 in interest.
If I pay $0 extra per month for 15 years, my balance will be $128000 and I would have paid $97500 in interest.

If I save $260 extra per month for 15 years, that would be $46800 after 15 years (0% return).

how do I look at the math to save that little bit extra instead of applying it to the mortgage?

I've also had a realization that I may not get money any cheaper than this in the future so that is a factor too.



I didn't feel this warranted a separate thread and apologies to the OP for interjecting on this one (of many mortgage threads).
If you are able to invest your $240/mo savings at a rate greater than your mortgage interest, then you will come out ahead. If you aren't, then you will lose.

If you had the option to invest in a mutual fund that earns 4.5% a year, every year, would you invest your money in it or would you prefer to put money into your overall asset allocation?
Thanks for the reply. I’ve looked at this several ways over and over. I listen to KlangFool’s arguments. I have 40% in the house, 40% in Roth/401k and then 20% in taxable savings (cash/stock/cd).

But then I look at the dollar amount of interest and remaining principal and that 63k difference by putting out 48k and also reducing the timeline to another 5 years after that point seems like it’s not something that should be passed up.

Even Investing that $260/month over 15 years barely gets me even with the 63k difference.

It’s not like a car loan where I am paying hundreds of dollars in interest.


I paid off a mortgage before. I know I could do this one too.

Analysis paralysis at this point.
mortfree,

You do not have 40% in the house. The 40% is your home equity. For this kind of analysis, you need to look at the price of the house. So, the house is more than 40%.

For example, let's assume that the house is 200K and the home equity is 100K. And, the rest is 150K. Your net worth is 250K. But, because the house's price is 200K, if it drops to 0, your net worth will be 50K.

Your exposure to the house is 200K. It is not 100K.

If I am wrong in interpreting your statement, please correct me.

KlangFool
thanks for the reply - I have 50% equity in my house, but overall the house represents around 40% of my total assets (currently). updated the numbers and below are the details since I really do want to get to the bottom of this internal debate I am having with myself about the extra 260/month for 15 years or so...

I keep getting hung up on the mortgage math where I see a much lower principal balance (65k vs 128k after 15 years) for something as simple as 260/month... and comparing that to 260*12*15 years = 46.8k or so, plus investment returns (risk as well) it could be tough to have that 46.8k in savings come close to the 63k difference in mortgage balance after 15 years... I guess that's where front loaded interest and the risk-free guarantee return comes into play when pre-paying the mortgage.

What I see is that I am accumulating the 260/month over time, but the compounding of the mortgage is now off of 190k - even at a sub 4% rate is the expectation that 260/month plus any "returns" keep pace (or exceed) with the mortgage interest over time or do I need to start looking at this differently?

House 380k, mortgage 190k
retirement 440k
cash/stocks 134k

thanks

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Re: Mortgage question: 20% down or larger down payment?

Post by JoeRetire » Sat May 12, 2018 6:22 am

sketchy9 wrote:
Fri May 11, 2018 9:34 am
I put 40% down because, at the time I bought my place, I was working less (with a lower monthly income) so I couldn't afford the monthly payment with a 20% down payment.
This is confusing.

If you had the money to put down 40%, couldn't you have used that same money to "afford the monthly payment with a 20% down payment"?

KlangFool
Posts: 10666
Joined: Sat Oct 11, 2008 12:35 pm

Re: Mortgage question: 20% down or larger down payment?

Post by KlangFool » Sat May 12, 2018 6:32 am

mortfree wrote:
Sat May 12, 2018 1:05 am
KlangFool wrote:
Fri May 11, 2018 8:16 pm
mortfree wrote:
Fri May 11, 2018 6:16 pm
Jags4186 wrote:
Fri May 11, 2018 11:06 am
mortfree wrote:
Fri May 11, 2018 10:55 am
I touched on this in another thread but it got locked b/c 2 other individuals were having a sparring match unrelated to the topic... and I didn't get to resolve it.

so here goes. 30 year mortgage; assume all 401k and Roths are maxed; EF of 6 months funded; taxable investments of 100k, etc.

If I pay $260 extra per month on my mortgage for 15 years, my balance will be $65,000 and I would have paid $81,000 in interest.
If I pay $0 extra per month for 15 years, my balance will be $128000 and I would have paid $97500 in interest.

If I save $260 extra per month for 15 years, that would be $46800 after 15 years (0% return).

how do I look at the math to save that little bit extra instead of applying it to the mortgage?

I've also had a realization that I may not get money any cheaper than this in the future so that is a factor too.



I didn't feel this warranted a separate thread and apologies to the OP for interjecting on this one (of many mortgage threads).
If you are able to invest your $240/mo savings at a rate greater than your mortgage interest, then you will come out ahead. If you aren't, then you will lose.

If you had the option to invest in a mutual fund that earns 4.5% a year, every year, would you invest your money in it or would you prefer to put money into your overall asset allocation?
Thanks for the reply. I’ve looked at this several ways over and over. I listen to KlangFool’s arguments. I have 40% in the house, 40% in Roth/401k and then 20% in taxable savings (cash/stock/cd).

But then I look at the dollar amount of interest and remaining principal and that 63k difference by putting out 48k and also reducing the timeline to another 5 years after that point seems like it’s not something that should be passed up.

Even Investing that $260/month over 15 years barely gets me even with the 63k difference.

It’s not like a car loan where I am paying hundreds of dollars in interest.


I paid off a mortgage before. I know I could do this one too.

Analysis paralysis at this point.
mortfree,

You do not have 40% in the house. The 40% is your home equity. For this kind of analysis, you need to look at the price of the house. So, the house is more than 40%.

For example, let's assume that the house is 200K and the home equity is 100K. And, the rest is 150K. Your net worth is 250K. But, because the house's price is 200K, if it drops to 0, your net worth will be 50K.

Your exposure to the house is 200K. It is not 100K.

If I am wrong in interpreting your statement, please correct me.

KlangFool
thanks for the reply - I have 50% equity in my house, but overall the house represents around 40% of my total assets (currently). updated the numbers and below are the details since I really do want to get to the bottom of this internal debate I am having with myself about the extra 260/month for 15 years or so...

I keep getting hung up on the mortgage math where I see a much lower principal balance (65k vs 128k after 15 years) for something as simple as 260/month... and comparing that to 260*12*15 years = 46.8k or so, plus investment returns (risk as well) it could be tough to have that 46.8k in savings come close to the 63k difference in mortgage balance after 15 years... I guess that's where front loaded interest and the risk-free guarantee return comes into play when pre-paying the mortgage.

What I see is that I am accumulating the 260/month over time, but the compounding of the mortgage is now off of 190k - even at a sub 4% rate is the expectation that 260/month plus any "returns" keep pace (or exceed) with the mortgage interest over time or do I need to start looking at this differently?

House 380k, mortgage 190k
retirement 440k
cash/stocks 134k

thanks
mortfree,


<<comparing that to 260*12*15 years = 46.8k or so, plus investment returns (risk as well) it could be tough to have that 46.8k in savings come close to the 63k difference in mortgage balance after 15 years... >>

This statement is wrong. It is easy to beat the number. You need to compare compounding interest of mortgage with the compounding return of the $260.

Do this in Excel assuming 5% return

=FV((0.05/12),(12*15),-260)

You get $69,495

Assuming 6% return

=FV((0.06/12),(12*15),-260)

You get $75,613

As long as the return rate is greater than the mortgage rate by 25% or more (5% versus 4%) to account for the tax burden, it could beat the number easily.

A) I invest the extra money based on my AA (61/39).

B) Yes, I am taking extra risk. But, I could pay off or pay down the mortgage if the return rate is not better at any time. I could change my mind every year.

KlangFool

mortfree
Posts: 1319
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Re: Mortgage question: 20% down or larger down payment?

Post by mortfree » Sat May 12, 2018 8:34 am

KlangFool wrote:
Sat May 12, 2018 6:32 am
mortfree wrote:
Sat May 12, 2018 1:05 am
KlangFool wrote:
Fri May 11, 2018 8:16 pm
mortfree wrote:
Fri May 11, 2018 6:16 pm
Jags4186 wrote:
Fri May 11, 2018 11:06 am


If you are able to invest your $240/mo savings at a rate greater than your mortgage interest, then you will come out ahead. If you aren't, then you will lose.

If you had the option to invest in a mutual fund that earns 4.5% a year, every year, would you invest your money in it or would you prefer to put money into your overall asset allocation?
Thanks for the reply. I’ve looked at this several ways over and over. I listen to KlangFool’s arguments. I have 40% in the house, 40% in Roth/401k and then 20% in taxable savings (cash/stock/cd).

But then I look at the dollar amount of interest and remaining principal and that 63k difference by putting out 48k and also reducing the timeline to another 5 years after that point seems like it’s not something that should be passed up.

Even Investing that $260/month over 15 years barely gets me even with the 63k difference.

It’s not like a car loan where I am paying hundreds of dollars in interest.


I paid off a mortgage before. I know I could do this one too.

Analysis paralysis at this point.
mortfree,

You do not have 40% in the house. The 40% is your home equity. For this kind of analysis, you need to look at the price of the house. So, the house is more than 40%.

For example, let's assume that the house is 200K and the home equity is 100K. And, the rest is 150K. Your net worth is 250K. But, because the house's price is 200K, if it drops to 0, your net worth will be 50K.

Your exposure to the house is 200K. It is not 100K.

If I am wrong in interpreting your statement, please correct me.

KlangFool
thanks for the reply - I have 50% equity in my house, but overall the house represents around 40% of my total assets (currently). updated the numbers and below are the details since I really do want to get to the bottom of this internal debate I am having with myself about the extra 260/month for 15 years or so...

I keep getting hung up on the mortgage math where I see a much lower principal balance (65k vs 128k after 15 years) for something as simple as 260/month... and comparing that to 260*12*15 years = 46.8k or so, plus investment returns (risk as well) it could be tough to have that 46.8k in savings come close to the 63k difference in mortgage balance after 15 years... I guess that's where front loaded interest and the risk-free guarantee return comes into play when pre-paying the mortgage.

What I see is that I am accumulating the 260/month over time, but the compounding of the mortgage is now off of 190k - even at a sub 4% rate is the expectation that 260/month plus any "returns" keep pace (or exceed) with the mortgage interest over time or do I need to start looking at this differently?

House 380k, mortgage 190k
retirement 440k
cash/stocks 134k

thanks
mortfree,


<<comparing that to 260*12*15 years = 46.8k or so, plus investment returns (risk as well) it could be tough to have that 46.8k in savings come close to the 63k difference in mortgage balance after 15 years... >>

This statement is wrong. It is easy to beat the number. You need to compare compounding interest of mortgage with the compounding return of the $260.

Do this in Excel assuming 5% return

=FV((0.05/12),(12*15),-260)

You get $69,495

Assuming 6% return

=FV((0.06/12),(12*15),-260)

You get $75,613

As long as the return rate is greater than the mortgage rate by 25% or more (5% versus 4%) to account for the tax burden, it could beat the number easily.

A) I invest the extra money based on my AA (61/39).

B) Yes, I am taking extra risk. But, I could pay off or pay down the mortgage if the return rate is not better at any time. I could change my mind every year.

KlangFool
Thank you very much. Greatly appreciate your time to explain the compounding of the 260/month versus the mortgage interest over time.

I also like the idea of adjusting the plan as needed.

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grabiner
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Re: Mortgage question: 20% down or larger down payment?

Post by grabiner » Sat May 12, 2018 5:08 pm

JoeRetire wrote:
Sat May 12, 2018 6:22 am
sketchy9 wrote:
Fri May 11, 2018 9:34 am
I put 40% down because, at the time I bought my place, I was working less (with a lower monthly income) so I couldn't afford the monthly payment with a 20% down payment.
This is confusing.

If you had the money to put down 40%, couldn't you have used that same money to "afford the monthly payment with a 20% down payment"?
You can afford it, but the bank may not think so. If the bank requires that the mortgage payment be no more than 28% of your income, and you earn $5000 per month, you cannot get a mortgage which requires a payment of more than $1400, regardless of how much cash you leave in the bank. Thus, you might need to make a larger down payment, or a mortgage with lower initial payments.
Wiki David Grabiner

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Re: Mortgage question: 20% down or larger down payment?

Post by JoeRetire » Sat May 12, 2018 7:28 pm

grabiner wrote:
Sat May 12, 2018 5:08 pm
JoeRetire wrote:
Sat May 12, 2018 6:22 am
sketchy9 wrote:
Fri May 11, 2018 9:34 am
I put 40% down because, at the time I bought my place, I was working less (with a lower monthly income) so I couldn't afford the monthly payment with a 20% down payment.
This is confusing.

If you had the money to put down 40%, couldn't you have used that same money to "afford the monthly payment with a 20% down payment"?
You can afford it, but the bank may not think so. If the bank requires that the mortgage payment be no more than 28% of your income, and you earn $5000 per month, you cannot get a mortgage which requires a payment of more than $1400, regardless of how much cash you leave in the bank. Thus, you might need to make a larger down payment, or a mortgage with lower initial payments.
So you think the OP actually could afford it in spite of indicating that he couldn't, but got turned down for a 20% down mortgage?
Or you are just positing a potential problem others might have?

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sergeant
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Re: Mortgage question: 20% down or larger down payment?

Post by sergeant » Sat May 12, 2018 10:06 pm

Faisal wrote:
Thu May 10, 2018 11:25 pm
Thanks for all the responses guys.

Preapproval is at 4.5% with 30 year mortgage and 20% down. But then again the preapproval is for an amount much larger than we need. Don't aim to be house poor.

We are aiming for a home around the 500k mark. Our max loan amount is 400k with a 20% down payment but if we want to put bring that loan amount down we can throw another 100k into the downpayment to make the loan amount less.

But then the question is do we put extra money down up front or do we do it after we have put then 20% down, completed all formalities and purchased the home and then we slowly monthly/yearly pay down more principal.

It also does not help that the market is at its peak or what appears to be its peak and people are predicting doom and gloom everywhere.
This doesn't add up. You state the pre-approval is for an amount much larger than you need. You state that you want a 500k home and are pre-approved for a 400k loan and will put 20% down. Um.. my math shows you are not pre-approved for an amount much larger than you need. :annoyed
Lincoln 3 EOW!

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Re: Mortgage question: 20% down or larger down payment?

Post by PFInterest » Sat May 12, 2018 10:35 pm

Faisal wrote:
Thu May 10, 2018 4:03 am
I have asked a few questions earlier about mortgages in the US and everyone has been very helpful. Now that we are deciding to get a place I wanted to know if there was any advantage to a larger down payment vs 20%?

Also I was wondering if there was any benefit to putting down 20% and then over time paying off large percentage of the mortgage as we have the money a few months/years down road instead of say doing a 30 or 40% down payment?
20% 15 year

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Re: Mortgage question: 20% down or larger down payment?

Post by dknightd » Sun May 13, 2018 7:25 am

You have budgeted for a $100k down payment. It sounds like it is comfortable for you. I'd make that down payment regardless of the final percentage.

sketchy9
Posts: 167
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Re: Mortgage question: 20% down or larger down payment?

Post by sketchy9 » Sun May 13, 2018 9:46 am

JoeRetire wrote:
Sat May 12, 2018 7:28 pm
grabiner wrote:
Sat May 12, 2018 5:08 pm
JoeRetire wrote:
Sat May 12, 2018 6:22 am
sketchy9 wrote:
Fri May 11, 2018 9:34 am
I put 40% down because, at the time I bought my place, I was working less (with a lower monthly income) so I couldn't afford the monthly payment with a 20% down payment.
This is confusing.

If you had the money to put down 40%, couldn't you have used that same money to "afford the monthly payment with a 20% down payment"?
You can afford it, but the bank may not think so. If the bank requires that the mortgage payment be no more than 28% of your income, and you earn $5000 per month, you cannot get a mortgage which requires a payment of more than $1400, regardless of how much cash you leave in the bank. Thus, you might need to make a larger down payment, or a mortgage with lower initial payments.
So you think the OP actually could afford it in spite of indicating that he couldn't, but got turned down for a 20% down mortgage?
Or you are just positing a potential problem others might have?
I couldn't afford it on a monthly cash flow basis with only 20% down, which is what I meant. And yes, I could've used savings to make up the difference. But I felt that there were other benefits to using it as a down payment, such as loan eligibility, a lower interest rate potentially, and a stronger offer. These were all theoretical benefits but I thought they were likely worth pursuing.

I also had enough savings not to be "house poor."

Rebecca_S
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Re: Mortgage question: 20% down or larger down payment?

Post by Rebecca_S » Sun May 13, 2018 12:31 pm

In my market, which has very low inventory and multiple offers for most houses, many buyers make their offer more attractive by offering all cash. If you have a mortgage contingency, putting significantly more than 20% down gives the seller more confidence that your mortgage will be approved and the deal won't be delayed because of financing. We are in the process of buying right now and are putting down over 50%.

dmk395
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Re: Mortgage question: 20% down or larger down payment?

Post by dmk395 » Sun May 13, 2018 7:20 pm

25% typically in my dealings always gave the best rate, assuming the loan was for at least 150k. Personally I'd go 25% down, then use my extra cash to start making the extra payments on what it would take to accelerate the 30 yr loan down to a 15. People can say what they want BUT there's no better asset to have than a fully paid off house. You get piece of mind with knowing you don't have a very large bill due on the 1st each month

tampaite
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Re: Mortgage question: 20% down or larger down payment?

Post by tampaite » Mon May 14, 2018 6:52 am

Faisal wrote:
Thu May 10, 2018 4:03 am
I have asked a few questions earlier about mortgages in the US and everyone has been very helpful. Now that we are deciding to get a place I wanted to know if there was any advantage to a larger down payment vs 20%?
Neglible. The right question maybe will I save thousands if I get a 10 yr vs 15 yr vs 30 yr mortgage?

LiterallyIronic
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Re: Mortgage question: 20% down or larger down payment?

Post by LiterallyIronic » Mon May 14, 2018 8:48 am

Faisal wrote:
Thu May 10, 2018 4:03 am
I wanted to know if there was any advantage to a larger down payment vs 20%?
When we were getting our mortgage last year, there was a lower interest for people with 20% down than people with less than that. And yet a lower interest rate for people with 25% down. There was not a lower tier interest for people with 30%, so we did 29% and called it good.

If the options were to start with the 30% or 40% down like you suggested, versus starting at 20% down and plopping down the other 15-20% some time in the future, I'd go with the larger down payment. Makes for smaller monthly payments.

You'll find some people on this board recommend investing over paying off the mortgage and some will say to pay off the mortgage over investing. It depends on your interest rate, your willingness to take risk, your desire for liquidity, your ability to sleep at night, etc. There's no real right answer to that question. I'm of the "pay off the mortgage" camp because I would never take out a loan at 3.875% in order to invest in the market. Some people would. It's a personal part of "personal finance."

Angelus359
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Re: Mortgage question: 20% down or larger down payment?

Post by Angelus359 » Mon May 14, 2018 8:55 am

2 years ago I bought a 112k condo

It was on a 15 year 2.99 mortgage.
If I didn't do 25%, it would have been 3.24
IT-DevOps System Administrator

CurlyDave
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Re: Mortgage question: 20% down or larger down payment?

Post by CurlyDave » Tue May 15, 2018 9:45 am

KlangFool wrote:
Thu May 10, 2018 9:28 am
OP,

1) Is it a recourse loan or non-recourse loan?

In a recourse loan, the loaner can go after your asset beyond the house.

2) Do a 20% down payment and 30 years fixed interest mortgage.

Do not tie up too much of your money in the house basket. Think diversification.

KlangFool
+1

Faisal
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Re: Mortgage question: 20% down or larger down payment?

Post by Faisal » Mon May 21, 2018 4:26 am

Sorry for the delayed reply every one but I have been travelling for work. Thank you everyone for your advice and your response. To address some of the questions in chronological order:

I am not sure if we put down a larger down payment will we get a lower interest rate. But that is something I should follow up on and can see what can be done.

@KlangFool
I am very familiar with your views on Real Estate and while in ideal circumstances I would follow a similar conservative and financially prudent course of action, it is rather untenable when real estate is growing exponentially compared to wage growth in the US. So to answer your questions, yes 30 years with 20% downpayment. Its a non-recourse loan. In addition by your definition we would be house poor, and will be for 30 years as per the mortgage. But its cheaper in many ways then renting in our HCOL area.

@Hazel-Rah
Thank you for the information on the recast. I honestly had not heard of this before and thought I could just add more to my monthly payment as I saw fit. Just a few questions about a recast, do I need to discuss this with the mortgage company before hand or can it be done at any point and is the extra money a fixed amount or does it allow flexibility or is that something I can discuss with the bank/company.

@ FeesR-BullNotBullish
In my case my organization provides a very healthy pension which is for US legal purposes a tax-advantaged account. So this would be converting liquid cash and emergency fund into a down payment for a home. I personally do not feel comfortable taking a loan but that is how it works.

@Sergeant
I feel comfortable with a 400k loan and nothing more. It gives me cushion in case of an emergency. I have no desire to purchase a large home which will lead to higher maintenance costs over time, higher property taxes etc. The idea is to financial prudent and yet maintain a QOL that I and the Mrs have grown accustomed too. Thus the desire to do a 400k loan and no more. Our down payment amount thus affect our final price of the home, with the 400k loan.

And to all the rest who provided their input. Thank you very much. You have given me and the mrs. a lot to think about and consider for the future. Liquidity is an option i did not consider, nor a 15 year mortgage. Will look into those options and maybe speaking to the bank of adjusting the interest rate lower if I make a larger down payment.

Thank you again.

Charon
Posts: 75
Joined: Thu May 03, 2018 12:08 pm

Re: Mortgage question: 20% down or larger down payment?

Post by Charon » Mon May 21, 2018 10:02 am

Faisal wrote:
Mon May 21, 2018 4:26 am
@Hazel-Rah
Thank you for the information on the recast. I honestly had not heard of this before and thought I could just add more to my monthly payment as I saw fit.
You can just add more to your monthly payments (if there's no prepayment penalty). It just affects the duration of the loan rather than your monthly payments, if you do it that way.

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