Benefits of a 20% Down Payment

The Low Down of Twenty Percent


The number one obstacle to purchasing a home is saving for the down payment. A down payment is the amount of money spent before purchasing a home. The money is united with monthly mortgage payments to complete the total purchase price of a residence.


It is ideal to put down 20% of the value of your dream home but 5% will get you qualified for a mortgage.


Why is 20% just right? Settlements, Ltd. explains the benefits of a 20 % down payment and the financial implications of depositing less.


Benefits of 20% Down

  • Private Mortgage Insurance (PMI) is not required.
  • Monthly payments are substantially reduced.
  • Equity level is increased.


Disadvantages of 5% Down

  • PMI is required.
  • Principal is high.
  • Interest costs are elevated.


Similarities of Down Payments

  • Property tax
  • Homeowners Insurance


Example of Savings


With a 4.25 % interest rate on a 30-year fixed mortgage, a $300,000 home with 20 % down results in a monthly payment of $1,548. Interest and principal of each monthly payment is $1,181.


In contrast, the same mortgage with 5 % down requires a $1,950 monthly payment. A monthly payment for interest and principal is $1,402.


The comparative mortgages necessitate equal amounts for property tax and homeowners insurance but differ in the amount of calculated interest and the inclusion of PMI. PMI costs include an additional $181 per month resulting in a net difference between the two options of $402 per month.


Opting for 20 % down calculates to a total savings of $54,117 in mortgage insurance and interest over the duration of 30 years. That’s a considerable monthly savings.


Explanation of PMI


Private Mortgage Insurance (PMI) is required on all conventional loans providing the equity level of the owner is less than 20 %. Also referred to as lenders insurance, the requirement provides an extra incentive for a buyer to meet the 20 % threshold and avoid the additional payment. Lenders are mandated to cancel PMI when proprietor’s value reaches 22 % of current loan price.


Analyzing all available options is how Settlements, Ltd. is able to maximize the benefits within each loan package. When structured properly, residential real estate is an excellent investment in addition to serving as a home. The experienced professionals at Settlements, Ltd. are ready to provide assistance in producing the optimal outcome in all your real estate transactions. Call us for more information today at 412-922-6095.