4 reasons to put more money on your home

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When you take out a mortgage, you usually bring money to the table for a down payment. The amount you need to pay varies depending on the lender. Some lenders charge 20% on closing, but many accept 5% or 10%. And there are some mortgages, like FHA loans, that require even less money on closing.

However, it may be in your best interest to put more money on your home, not less. Here are four reasons why.

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1. You have a lower monthly payment

The more money you invest in your home up front, the less you have to spend in the form of a monthly mortgage payment. This, in turn, could make it easier to integrate these payments into your budget. Plus, if you plan to add expenses to your budget in the future (for example, you plan to have children), a lower mortgage payment gives you more financial flexibility once your circumstances change.

2. You pay less interest over the life of your loan

Mortgage lenders make money by charging interest on the amount you borrow to finance your home. The less you borrow, the less you spend on interest. Suppose you buy a house for $ 400,000 and pay 20% of it, or $ 80,000. If you take out a 30-year 3% mortgage, you’ll spend $ 165,688 in interest over your repayment period. But if you deposit $ 100,000 instead of $ 80,000, you are spending $ 155,333.

3. You build up equity in your home faster

Your home equity refers to the part of your home that you own entirely, and it’s calculated by subtracting your mortgage balance from the market value of your home. The more equity you accumulate, the more options you have to borrow against your home through a Home Equity Loan or Line of Credit (HELOC).

4. You avoid costly fees

If you take out a conventional loan and don’t put down a 20% down payment on your home, you need to pay for private mortgage insurance, or PMI. PMI protects your lender in the event of a delay in repaying your loan, and this can easily cost up to 1% of your loan amount each year. This means that if you have a $ 300,000 mortgage, you could end up paying an additional $ 3,000 per year, or $ 250 per month, to own your home.

To be clear you don’t wanna get attached too much money in your home, especially when mortgage rates are competitive like they are today. In other words, if you buy a house for $ 400,000, you might not want to put 50% of it, even if you can. But it is generally beneficial to put 20% if you can to avoid PMI. And if you put in a little more than that, it could lead to interest savings and more financial flexibility at later stages in your life.

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