How Much Should I Put Down?
The other day I was talking to a friend about down payments on mortgages. He wanted to know whether I thought 10 or 20% was the ideal amount to put down as mortgage payments.
A couple other people who feel 20% is the ideal amount got into the conversation. Turns out some people actually believe you should put down as much as possible even if it means 50%.
I approach a home very differently, based on age and future plans.
I'm of the opinion that my friend who is young and has no family should only put down 10% and look for other places to invest the remaining 10% as long as it doesn't adversely affect his interest rate and he won't pay PMI.
I've never seen a home as much of an investment for a couple of reasons:
1. Unlike other actual investments like a CD, stock markets funds, etc, a home actually becomes a burden financially should things turn worse economically, say a job loss.
2. You cannot tap into it without, a) either having to dispose of it, which is not easy, since it's one of the most illiquid "investments", b)acquiring debt either through additional mortgage or home equity line of credit.
For me these issues weigh heavily in considering a home as an investment. Mind you, this all pertains to a house you plan to live in.
For younger buyers, I would rather they buy something reasonable in a good area, even if they can afford "more house", and place 10% down.
The rest of the funds should go into more liquid, but restrictive investments, not a savings account you have easy access to with the next ATM. Think of the money the same way you would think of a 30 year mortgage. For the long term with high yield, say an ETF, mutual fund if you're not good with picking and sticking with great companies' stocks.
This way, your money keeps growing, usually faster than the value of your house will grow, you have access to it should things turn out for the worse, you can easily use it to tap into great money making ventures or ideas without putting your home at risk, and so on.
In the meantime, just consider your tax credit on your house as offsetting the taxes on dividends if any.
If you have the means, pay more on your mortgage every month. That way, you still have the effect of putting more money down by reducing your interest going forward.
Of course, this all changes if we are talking about an older person, settled with a wife and kids, who knows they'll be living in the same house for years and years to come and has more disposable income.
The other day I was talking to a friend about down payments on mortgages. He wanted to know whether I thought 10 or 20% was the ideal amount to put down as mortgage payments.
A couple other people who feel 20% is the ideal amount got into the conversation. Turns out some people actually believe you should put down as much as possible even if it means 50%.
I approach a home very differently, based on age and future plans.
I'm of the opinion that my friend who is young and has no family should only put down 10% and look for other places to invest the remaining 10% as long as it doesn't adversely affect his interest rate and he won't pay PMI.
I've never seen a home as much of an investment for a couple of reasons:
1. Unlike other actual investments like a CD, stock markets funds, etc, a home actually becomes a burden financially should things turn worse economically, say a job loss.
2. You cannot tap into it without, a) either having to dispose of it, which is not easy, since it's one of the most illiquid "investments", b)acquiring debt either through additional mortgage or home equity line of credit.
For me these issues weigh heavily in considering a home as an investment. Mind you, this all pertains to a house you plan to live in.
For younger buyers, I would rather they buy something reasonable in a good area, even if they can afford "more house", and place 10% down.
The rest of the funds should go into more liquid, but restrictive investments, not a savings account you have easy access to with the next ATM. Think of the money the same way you would think of a 30 year mortgage. For the long term with high yield, say an ETF, mutual fund if you're not good with picking and sticking with great companies' stocks.
This way, your money keeps growing, usually faster than the value of your house will grow, you have access to it should things turn out for the worse, you can easily use it to tap into great money making ventures or ideas without putting your home at risk, and so on.
In the meantime, just consider your tax credit on your house as offsetting the taxes on dividends if any.
If you have the means, pay more on your mortgage every month. That way, you still have the effect of putting more money down by reducing your interest going forward.
Of course, this all changes if we are talking about an older person, settled with a wife and kids, who knows they'll be living in the same house for years and years to come and has more disposable income.
posted by Shegun at
10:47 AM
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