I am in the process of shopping for a condo/home. I have the means to put down much more than 20% for downpayment.

Question is:

1) Do I put down 20% and overpay on monthly payments?
2) Put down more than 20% and pay normal monthly mortgage payment?
3) Try to qualify for 5/1 arm mortgage?
4) 15 year mortgage?

Thanks

5/31/2010 12:13:14 PM

Make sure you have $8-10 k saved in case of a broken heating system or some other problem like roof leak. After that, put down what you can. That way your payments will be less over the course of the mortgage.

5/31/2010 12:21:30 PM

If it's a condo then you don't have to pay for things like roof leaks. That's what HOA dues are for. I regret putting 20% down on my condo. have all the money tied up and the only benefit is no PMI...which you can avoid by originating via SECU

5/31/2010 12:49:59 PM

Pay every 2 weeks instead of once monthly.

5/31/2010 1:10:37 PM

most people say not to take out a mortgage more than 25% of your take home pay. So you dont become house poor. As minihome6 said, make sure you have some cash on reserve.

We are currently trying to refi down into a 15yr so we can pay off our house as soon as possible. Paying every 2 weeks amounts to one extra payment a year, so you can pay every two weeks or add 1/12 of a payment on to your monthy.. or whatever extra you can.

5/31/2010 1:16:51 PM

I dont understand why you would want to pay your mortgage down quickly. My interest rate is 4.5% and the mortgage interest is tax deductible.

Look at is this way - you get a 4.5% return (minus tax benefits) by paying to your mortgage.

Put that extra money in the market (low risk bonds - tax sheltered muni's) and you'll most likely earn more than 4.5%.

[Edited on May 31, 2010 at 1:23 PM. Reason : int]

5/31/2010 1:23:08 PM

to me, its more about freeing up my income and lowering risk.

5/31/2010 1:36:54 PM

if you want to free income then why pour it in to an illiquid asset like a house. put it in a bond that yields 5%. you'll make more money and will have the ability to sell in a pinch. can't do that with a house.

I can understand your point if interest rates were about 6%.

[Edited on May 31, 2010 at 1:49 PM. Reason : ]

5/31/2010 1:46:20 PM

bc im trying to free up income. I dont want to sink 25% of it into my home for the next 27 yrs.

I will concede that the math is better to borrow at a low rate and put into investments that will earn more. But Im more risk adverse. If im sitting with a paid off house by 40, ill have my peak earning years ahead and without the largest financial burden, thus freeing up new opportunities. If I get sick and lose my job, then Ill have enough equity to get out of it in a hurry. Instead of worrying about short sales or what the market is doing with my other investments. Or maybe be sitting in my paid off house not worrying about selling it.

I view it more as an obligation.

5/31/2010 1:55:16 PM

from a money perspective, if it is fixed rate (and this low) you are probably better off just putting down the 20 and paying it off slowly.

that assumes of course that you are doing everything else like investing the other money, not blowing it on other unneeded expenses, etc.

i'd say if it makes sense to you to put more down, then do it. ultimately it is what about makes you comfortable.

5/31/2010 2:07:43 PM

it still isn't hard to find 30 year fixed rate mortgages under 5%, so i don't see any reason to consider an arm. i've also never understood the appeal of 15 year mortgages, and especially so with the current rates. why lock yourself in to that payment plan unnecessarily? leave yourself the freedom to invest at an opportune time, save for a rainy day, or pay more than scheduled monthly, if you so desire. from much the same reasons, i don't see any reason to put down more than 20%. from there, it really all depends on your personal situation, future expenses, goals, etc.

5/31/2010 2:35:23 PM

I agree. THe ARM with these low fixed rates is a bad move.

5/31/2010 2:48:54 PM

I really see both sides. My argument to those who don't want to pay down faster, most Americans wouldn't use that extra income towards wise investments, but rather just give them more spending money.

5/31/2010 3:24:36 PM

1. yes, no
2. no
3. no
4. no

5/31/2010 4:57:14 PM

Quote :

"If im sitting with a paid off house by 40, ill have my peak earning years ahead and without the largest financial burden, thus freeing up new opportunities."

True, however there are caps on things like IRAs and 401ks. You're going to regret not putting more in them when you were younger.

5/31/2010 5:11:23 PM

I wouldn't put more than 20% in to it. If you ever get in to a financial jam, it would be easier to have that extra cash to get your hands on.

If it is a home that you are planning on living in forever then maybe put down as much as you can to lower payment and then just work hard to build the savings back up.

5/31/2010 5:55:26 PM

David there are income caps on Roth IRAs. We max those out currently. The most you can pay into a 401k I believe is 15k. I dont quite reach that max.

Obviously, putting as little money into low interest accounts and putting more into high interest accounts seems like the no brainer. But you have to factor in risk. 100% of foreclosures occur on houses with mortgages.

We put extra onto the mortgage currently, but I can move into a 15 yr and a lower rate which will knock the number of years down and cost me less in interest.

5/31/2010 7:13:48 PM

Quote :

"Put that extra money in the market (low risk bonds - tax sheltered muni's) and you'll most likely earn more than 4.5%."

most likely

5/31/2010 7:24:56 PM

I just closed on my house earlier this month. What I did was putting down 20% to avoid PMI, and did the 15-mortgage. I didn't put down as much as I could because I want to have at least $20K accessible just in case there's an emergency. The rate I got was 4.25% with zero point, but I think you might even able to get 4% now.

5/31/2010 7:35:11 PM

Quote :

"David there are income caps on Roth IRAs. We max those out currently. The most you can pay into a 401k I believe is 15k. I dont quite reach that max."

It's up to $16,500 now. I'd still max that out before applying anything extra to the mortgage. ymmv

6/1/2010 10:47:51 AM

What do you want to government is going to get their paws into retirement accounts soon?

6/1/2010 11:22:04 AM

English?

6/1/2010 12:46:37 PM

The main reason to pay off your house early is piece of mind. It isn't possible to put a price on that. For some people that's worth more than potential financial gain by paying a mortgage off slowly. For others it's not a big deal.

If you are on a fixed mortgage, and you're paying $1000 a month, you'll still be paying $1000 a month at the end of 30 years, assuming you never refi. Over time, assuming steady inflation, and a standard increase income over time, that $1000 a month becomes a less substantial part of your income over time. If you really think you'll be in a house for 30 years, then there's little sense in paying it down early.

Realistically, people move at least a few times during their adult life, and each time you do, you have a new mortgage with a new amortization table, so the more equity you have in your home, the less you get screwed by the fact that interest is heavily front loaded on a given mortgage.

Ultimately every situation is unique, and there's no best practice for all situations as this particular topic has a right answer as much as there is a right answer to "what diet and exercise plan is best?"

6/1/2010 1:14:01 PM

Quote :

"What do you want to government is going to get their paws into retirement accounts soon?"

Quote :

"English?"

Meant to say, "What do you want to bet the government is going to get their paws into retirement accounts soon?" They're so broke they're looking for any way to get money from us.

Brain was thinking faster than my fingers were typing...

6/1/2010 1:21:13 PM

When you withdraw money from your 401K you already have to pay taxes on it. The govt could always up taxes for ordinary income in the future or lower the age for mandatory distributions but even if they did this, it would still be beneficial to invest in a 401K.

6/1/2010 1:32:28 PM

Quote :

"I dont understand why you would want to pay your mortgage down quickly. My interest rate is 4.5% and the mortgage interest is tax deductible. Look at is this way - you get a 4.5% return (minus tax benefits) by paying to your mortgage. Put that extra money in the market (low risk bonds - tax sheltered muni's) and you'll most likely earn more than 4.5%."

Ding Ding.

Paying down a mortgage with a low interest rate is not a really smart financial move. Unless you can't stand living with yourself having a mortgage, don't put any extra to such a low interest rate.

6/1/2010 1:39:41 PM

my SECU ARM will be adjusted this month...i'm interested to see what it does

even if it goes up the full 1% allowed, i'm still paying no more than a 30-year fixed would be...my fiancée and i likely will have moved (or will be close to doing so) by the time 2 years rolls around again

the OP hasn't posted since the beginning, and so the question needs to be asked: what are your plans for the future? i knew when i bought my house that i was planning on moving within 6 years of purchase and that meant that an ARM made much more sense financially than a 30-year fixed...i put down no money and have no PMI...honestly, there wasn't any reason to do so, at the time

if you're planning on being in your house/condo for the long haul, get a low fixed rate, make sure you have $10k in liquid should something happen, and then put down as much as you want...as noted, though, if the rate's low enough, there's no good reason to put down more than is necessary to avoid certain fees

6/1/2010 2:02:52 PM

Quote :

"most people say not to take out a mortgage more than 25% of your take home pay. So you dont become house poor. As minihome6 said, make sure you have some cash on reserve."

I think you mean don't take out a mortgage that costs more than 25% of your take home per year, right?

[Edited on June 1, 2010 at 3:50 PM. Reason : ]

6/1/2010 3:50:44 PM

I have been in my house for 2 months now.

When we were looking at payments, we were deciding between 20% and 28% down. It changed the monthly payments less than $60 a month.
Just stick to 20% and then use the money in investments or upgrades.

6/1/2010 5:11:42 PM

AstralEngine, where the payment is no larger than 25% of your take home pay that month.

6/1/2010 6:25:00 PM

thanks for the responses. i think i will just stick with 20% down and then if i want i can always write a check towards principal if i want to pay it off early.

Quote :

"the OP hasn't posted since the beginning, and so the question needs to be asked: what are your plans for the future?"

Plans are to stay at the house as long as i have a job in this area. IF i have to move i would probably rent it out, as Boston is relatively good area for rental because of universities.

[Edited on June 2, 2010 at 2:57 AM. Reason : d]

6/2/2010 2:57:20 AM