The Finance Blogger

Low down payment mortgages

Low down payment mortgagesMany consumers consider low down payment mortgages to be a good thing. Since this process allows many people to purchase a home without having saved a large down payment. While this is true, there are some down sides to buying homes with nothing or very little down. We will discuss these issues in this post. Many consumers will and should buy homes with little money down. It is often better to go into a situation with your eyes wide open. This is to ensure that you know what you are getting into.

Low down payment mortgages – Some Issues

Larger Monthly payments – basically the less money you put down on your new home the more you have to borrow and pay interest on. If a home costs $100,000 and you only have $5000 as a down payment, the remainder $95,000 must be financed. A monthly payment is calculated based on the term and interest rate. If you can place $10000, instead of $5000, down you are going to have lower monthly payments. This can make life a lot easier every month to pay all of the other bills.

Higher overall interest costs – a larger mortgage means more interest to be paid over the life of the mortgage, which can be thousands of dollars in extra costs which most of us cannot or do not want to pay.

Possibly higher interest rate – Lenders view low down payments as an indication of higher risk and charge a higher interest rate. Now not only are you paying more interest because your mortgage is larger, you are paying more interest because you have a higher interest rate as well. Thousands of dollars more in fact.

Exposed if interest rates rise – with higher payments comes an additional risk and that is if interest rates rise. This is what happened in 2008 and many people could not meet their payments since a higher interest rate always means higher payments unless you have more money to put towards the mortgage.

Before you sign the dotted line to buy a home with little money down, take a few minutes to evaluate the risks associated with your situation, life style and financial situation.


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