What is a Mortgage Down Payment?

A down payment is usually paid on the closing of a mortgage loan and will play an important role in determining what kind of mortgage loan the borrower will get. For most first time home buyers, it’s the initial down payment and the inability to keep up with the monthly financial obligations (mortgage payment, insurance, utilities and maintenance) that discourage borrowers from taking the step towards property ownership.

The down payment is the difference between the value of the property and the loan amount, expressed in dollars, or as a percentage of value. Investing in a larger down payment is an investment that yields a return that consists in part of the interest rate on the money you aren’t borrowing. If you put an additional $10,000 down, for example, you are borrowing $10,000 less and you save the interest you would have paid on it.

There are a number of things to take into account when deciding how large of a down payment you are able to put toward your home purchase. One important consideration is your loan-to-value ratio, which decreases as your down payment increases. This figure represents how much you owe on your house after your down payment is applied. In other words, it’s a percentage that reflects the ratio between your home’s unpaid principal and the appraised value. A lower ratio is favoured. The higher your down payment, the lower your ratio will be.

Properties of a loan that can be affected by a down payment include:

– Whether or not private mortgage insurance (PMI) will need to be paid.
– The interest rate amount on a mortgage loan.
– What types of mortgage loans are available.
– A down payment’s amount will change from loan to loan, but generally speaking they will be anywhere between 5 to 20 percent for most loan borrowers.

To learn more about mortgage down payment requirements for home mortgages, please contact us and speak to one of our experts. For more information about mortgage products and our other services, give us a call: 1-888-955-9011.