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Home Prices Are Up. Should You Make a Higher Down Payment? – Motley Fool

If you’ve been keeping tabs on the U.S. housing market, you may be well aware that home prices have soared over the past year. We can thank limited inventory and low mortgage rates for fueling that trend.

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If you’ve been keeping tabs on the U.S. housing market, you may be well aware that home prices have soared over the past year. We can thank limited inventory and low mortgage rates for fueling that trend.

In September, the median listing price for a U.S. home was $380,000, according to Realtor.com. That’s up 8.6% from the same time last year, when demand for homes was also high.

Given the way home prices have gone up, you may be wondering if it makes sense to make a higher down payment on the property you end up buying. That way, you’ll have less of a mortgage to take out, which means you’ll pay less interest over the life of your loan. Here are the benefits and drawbacks of putting more money down at closing in today’s market.

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A higher down payment could benefit you

The less money you have to borrow in the form of a mortgage, the less money you spend on interest. Say you need a $300,000 loan at 3.2% interest that you’ll pay off over 30 years. All told, you’ll spend $167,300 in interest over the course of paying off your home. If you put another $20,000 down at closing to shrink your loan amount to $280,000, you’ll end up spending $156,147 on interest, assuming the same mortgage rate and repayment period. That’s over $11,000 in savings.

Plus, if you make that larger down payment, you’ll lower your monthly mortgage payment by $86. That buys you more wiggle room in your monthly budget.

A higher down payment may not be worth it

We just saw how a higher down payment could result in a nice amount of interest savings. But let’s remember that the roughly $11,000 in savings we reap in the example above is savings over a 30-year time frame. It’s not like you get to enjoy that savings in a single year.

Meanwhile, to enjoy that $11,000 in savings, you’ll …….

Source: https://www.fool.com/the-ascent/mortgages/articles/home-prices-are-up-should-you-make-a-higher-down-payment/

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