Most people know that putting a down payment on a house is smart business – it lowers your monthly payments because you have to finance less from the bank, and it can make you more likely to get lower interest rates and better terms on a mortgage loan. But how much can a down payment change your monthly costs, and is using the equity in your current home the smartest way to come up with a down payment? This guide explains.
How Much Can a Down Payment Change Your Monthly Costs When You Buy a Home?
For most mortgage loans, you need to come up with 20 percent of a home’s purchase price as a down payment if you want to avoid paying for private mortgage insurance, or PMI. Private mortgage insurance can get pretty pricey; it’s a payment you make each month to a separate insurer to protect your lender if you default on your mortgage payments. (In other words, your lender makes you buy this insurance and it doesn’t benefit you in any way.) There are some types of loans that you can get with less than 20 precent down – and typically, those loans require you to pay for PMI (except in the case of VA loans, because the U.S. Veterans Administration prohibits lenders from requiring it in this instance).
It’s not just about PMI, though. A higher down payment shows your lender that you have some proverbial “skin in the game,” and generally, you’ll qualify for better interest rates and other terms if you have more cash to contribute to the home’s purchase.
But perhaps most importantly, a higher down payment lowers the amount of money you have to finance to purchase a home in Boca Raton. That means your monthly payments will go down, and that you’ll save big bucks over the life of your loan.
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As with any other financial information, you should talk to a financial adviser to make sure you’re making the right decision – but check out the following table, which outlines how much money you’ll spend each month on a mortgage payment (all external factors like PMI ignored). The average home price in Boca Raton last year was just around $500,000, so that’s the figure we use in the following table. The table also assumes 3.615 percent interest on a 30-year, fixed-rate mortgage. (Sometimes just seeing the numbers is helpful!)
| Down Payment | Financed Amount | Monthly Mortgage Payment |
| $0 | $500,000 | $2,277 |
| $10,000 | $490,000 | $2,232 |
| $20,000 | $480,000 | $2,186 |
| $30,000 | $470,000 | $2,141 |
| $40,000 | $460,000 | $2,095 |
| $50,000 | $450,000 | $2,050 |
| $75,000 | $425,000 | $1,936 |
| $100,000 | $400,000 | $1,822 |
As you can see, the most savings come when you put down $100,000 – but where does a regular person get that kind of money?
You may want to consider using the equity in your current home as a down payment on your next one. The reason we’re bringing this up right now is that home prices are soaring – and that means many people have more equity in their homes than they think they do.
You can find out how much a buyer is likely to pay for your home on today’s market by calling our office. We’ll give you a free comparative market analysis that shows what buyers are paying for homes just like yours in Boca Raton right now.
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