If you’re thinking of buying a house and settling down, it’s crucial to have a down payment to secure a mortgage loan. And the more money you set aside for the down payment, the higher your chances of approval and the lower your monthly mortgage repayments will be. Because you will end up paying less interest with a larger down payment, it’s crucial to set aside as much as possible before applying for a mortgage loan.
With that said, we’ve listed some crucial things you must consider when saving for the down payment on your home.
Even though the general consensus is that you should save at least 10% for a down payment, it’s wise to save at least 20%.
Saving 20% of the mortgage loan total as a deposit will secure your chances of approval from lenders. Moreover, because your repayments will be lower, you’ll save a lot of money with a larger deposit amount as well.
If you do find your dream home when browsing homes for sale in Toronto or any other area, and you haven’t yet managed to gather up 20% for a down payment, you can still apply for a mortgage loan.
However, with a smaller down payment, you’ll need to pay for private mortgage insurance. You’ll also be responsible for added interest on the mortgage loan.
Private mortgage insurance is a policy that serves as a form of surety for lenders. This type of insurance policy will cost about $30-$70 per every $100,000 borrowed from the lender, and it’s almost unavoidable if you don’t have a 20% deposit.
Other than the down payment, you’ll also need to budget for other initial fees to secure your mortgage loan.
These fees include closing costs, which typically add up to between 2% and 5% of the mortgage loan total. Moreover, you’ll also need to consider appraisal fees, a home inspection, and loan-related fees like the application fee, assumption fee, attorneys fees, prepaid interest, and loan origination costs.
One of the best ways to reduce the amount of interest you pay on your mortgage loan is to pay the loan off sooner than the loan stipulated term.
An effective approach is to pay your mortgage loan every two weeks instead of making monthly payments. This approach will squash a lot of interest because you’ll end up making more repayments per year.
Another money-savvy approach to paying off a mortgage loan sooner is to release equity on your property later on and then add these funds to your mortgage loan.
Whether you decide to save for a 20% down payment, opt for private mortgage insurance, or find ways to pay off your mortgage loan as soon as possible, it’s crucial to do as much thorough research as possible before applying for the loan.