“Is it wise to put down a large down payment or put down the smallest amount possible? We have a lot of cash from the home we sold in Boston and can put down almost 50%. Or should we go 10% down and borrow the rest?”
Answer:
Simple question, not as simple to answer. Regarding what you should do, there are several factors, including:
1. Loan Thresholds
You’ll get a more attractive rate &/or loan terms with 20% than with 10% or 5% down.
2. Opportunity Cost
Typical fixed rates are hovering between 4% and 5% now. What return can you consistently get in another fairly safe investment? Probably not close to that.
3. Flexibility
If your income or bills are erratic, put less down and hide away some money for a rainy day.
4. Security
If you’re like my wife, you’d rather put more down as you seek the security of a lower mortgage payment and eventually even having your home paid off.
5. Taxes
I include this though I’m not convinced it’s valid. Many clients say they need to buy a San Diego home with a big mortgage because they’re “getting killed on taxes.” However, it makes no sense to borrow more at 4.5% and put the rest in the bank and get 1%.
You’ll notice that I didn’t give you an answer to your question. There’s no blanket answer that applies to everyone.
