Should I Save More Down Payment or Buy Now?

Should I Save More Down Payment or Buy Now in San Antonio Texas?

Should I save more down payment? I am asked this question a lot and sometimes the buyers simply state I’m going to wait and save up to have a lower loan value.

My question / response typically is how long do you plan to stay in the home once you’ve purchased and most of the time it is in the range from 3-10 years.

I would like to explain how you can make your money work for you when this statement is made.

Let’s say that you want to purchase a $150000 home and the interest rate at the time is 5%. On a 30 year loan the Principle & Interest will be approximately $805/month.

Let’s say that it takes 3 months to build up an additional 5% thereby reducing the loan amount by $7500. This would result in a loan amount of $142500. At an interest rate of 5% for a 30 year loan, the P&I would be $765/month. This is a difference of $40/month at the cost of $7500. It would take you 15.6 years to see the benefit of the $7500.

Let’s say that in 3 months you are able to save up an additional 1% and decide to buy down the interest rate to 4.5%. This would cost you $1500 on a $150000 loan amount. Now you have a loan amount of $150000 home and an interest rate of 4.5%. On a 30 year loan the Principle & Interest will be approximately $760/month. The difference is $45/month at the cost of $1500 and this would take you 2.8 years to see the benefit of the $1500.

Personally I would prefer to keep $6000 in my pocket and save $45 every month starting in Month 35. Stay in the home another 7 years and save $3780.

Also, remember that for every 1% increase in interest rate the mortgage amount increases by 10%.

Paying to lower your interest rate is the way to go. The reason is that interest rates are the most volatile thing about our San Antonio real estate market.

To discuss other ways to make your money work for you instead of working for your money, please contact me through my website at http://sarealtywatch.com/contact_me.asp.

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