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One of the most common advertisements that you can see in real estate when looking to buy a new house is the ‘Low Down Payment’. Many realtors would post this on their ad to entice people to buy the property. People get tempted by the idea that they do not have to put out a lot of money so they buy the property. They think that they saved a lot, or so they thought.

When you buy a property with a low down payment, you are not actually saving a lot of money. In fact, you are going to end up paying more money to the lender in the form of interest. The savings that you thought you enjoyed when you paid the low down payment actually means that your principal amount is bigger. The bigger you principal amount is, the bigger the amount of interest.

When you pay a larger down payment, your monthly payments become lower as the principal amount is smaller as well. This helps you manage your funds better on a monthly basis.

A lower monthly payment will be more manageable and won’t take as much toll on your monthly budget. It will also allow you to budget in some simple pleasures and not just make you think that you need to be saving all the money that you have towards the mortgage payments. You can go for inexpensive and fun things like going to the movies or going to a great place for dinner once every month when your monthly payments are lower.

Smaller monthly payments can also allow for savings which you can use as another lump sum payment that can go towards the payment of your principal amount. Again, less principal amount means less interest.

Private insurance mortgages or PMI are sometimes required for borrowers who borrow more than 80% of the price of the house. But if you pay at least 20% of the house’s value, you will not need the private mortgage insurance. The insurance amount on mortgages wherein the down payment is smaller also results in higher insurance premiums.

A higher down payment sometimes helps get your loan approved faster. Lenders like borrowers who only borrow a smaller amount. A bigger down payment also shows borrower strength. It shows the lenders that you are good at saving money. It is also a good indicator of a good credit standing. People who pay bigger down payments are perceived as someone who is good at saving money and won’t be likely to default. This makes lenders want to approve your loan faster.

Lastly, a higher down payment could mean you can be free of your mortgage sooner. With a big portion of the cost of the house taken cared of at the start, you can easily pay off your mortgage in no time.

Don’t think that you are saving a lot of money with a lower down payment. If you can pay for a huge down payment, it is highly recommended that you do so. If you don’t have enough money to make at least 20% down payment, try saving some more and not settling for the lower down payment. In the long run, a larger down payment really does pay off.