The Down Payment and Mortgage Relationship

Posted by Nick Niesen on October 29th, 2010

Most people automatically look for the lowest down payment option on mortgages. This knee jerk reaction is not always the best way to go.

The Down Payment and Mortgage Relationship

A down payment is usually required when obtaining a mortgage. Although there are some down payment free mortgages available, these can generally tend to carry higher interest rates as well. When seeking to obtain the best terms, most options, and lowest interest rates, it is important to have some money set aside to make a down payment with. In general, the average down payment rate on mortgages currently varies from 0 to 20 percent of the mortgage value depending on the type of loan and if it is guaranteed.

Any time you are getting a loan, the more money you can put into it yourself the better off you will be later. The more money you have to borrow means that there will be greater amounts of interest that will have to be paid in the long run. Also, the more money you can put down on any loan, including a mortgage, generally will mean that the lender will be able to make a better offer with a better plan and a lower interest rate, saving you additional money in high interest costs.

When seeking the lowest interest rate possible, have at least twenty percent of the mortgage value on hand. By being able to put a 20 percent down payment on a mortgage, you will be able to save yourself a ton of money on private mortgage insurance and overall interest payments. You will also be able to secure a pretty sizeable portion of the homes equity for your own use. Obviously, equity is extremely important and the less money you put down on the mortgage, meaning more the bank supplies, also means that the bank will own more of the house and therefore more of the equity on the house. You will then have no options in the future when it comes to that equity and also will not be able to benefit from the increase in that equity.

So be prepared to have some money set aside when looking for a mortgage. For those with no other options, no down payment mortgages can easily be found, but just remember what you are sacrificing in the long run. Be smart and be prepared and seek out the best plan for you.