Real Estate Agent in East York - Better Homes And Gardens Real Estate

Is It Worth It to Make a Down Payment of More Than 20 Percent?

25 March 2018
Kevin Hartley

Have you been considering buying a new home this year? If you have, you're not alone. Thousands of people are slated to become homeowners in the coming year. Regardless of your level of experience with buying property, I am sure you know there are big choices to make. One of the most critical decisions to think about is how much you want to make as a down payment.

Considering that question, I'll give you some things to think about to determine if it would be worth it (or not) to put more than 20 percent of your home's selling price as a down payment.

How Liquid Are Your Assets?

In advance of determining how much you should put as a down payment, you need first to take a good look at your finances and figure out how liquid you are. What that means, simply put, is how much cash are you able to access? As it is essential to not drain all of your cash assets, especially in the event of an emergency, this is something that is unique to each buyer. If the home you are considering costs $300,000, 20 percent of that is $60,000. If you have more than that to spare without draining your liquid assets, then you can decide to use it, but otherwise, you might need to wait and save up a bit more.

You'll be losing a lot of your liquid assets in the process of taking possession of your home, so bear in mind to leave yourself enough for an emergency fund.

The Higher Your Down Payment, The Lower Your Interest Rate

Investing more than 20 percent of the home's sale price into the down payment may put you in a position to have a lower interest rate on your mortgage. Having a large down payment is looked at favourably by lenders because it means that they are borrowing less than average and likely more financially secure. Check with your bank to find if lower interest rates are available to you.

I See Lower Monthly Payments In Your Future

Not only can you benefit from lower interest rates, but you can also benefit from lower monthly payments if you have made a sizeable down payment. Since you are borrowing less, you owe less. Deciding on a more substantial down payment can serve to reduce regular monthly expenses and increase your free cash flow.

 There is no right answer to how large your down payment should be. In making the decision, just make sure you look at your current financial situation in detail and decide what the best choice is for yourself. When you get to the point that you're ready to talk about it with a professional about it, you can contact me. I'm happy to share a wealth of experience that can serve to guide you.

Thanks for reading. Questions or ideas for a future blog? Feel free to contact me here.

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Kevin Hartley, Broker is a Toronto based real estate Broker with Better Homes & Gardens Real Estate | Signature Service, Brokerage. @Home is his lifestyle blog, an expression of his passion for home keeping though MAKING (Recipes), DOING (DIY), BEING (Health/Wellness) and DWELLING (Home Ownership, Sales & Maintenance).  Content not intended to solicit clients under contract.

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