Big Down Payment vs. Higher Loan Amount

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Which is better when applying for a mortgage, lower your income to debt ratio by paying more each month or to save a larger down payment and keep your monthly payments lower?


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This is a very good question. Before applying for a mortgage you should have worked on eliminating a good majority of consumer debt to lower your debt-to-income ratio, improve your credit scores, and increase cash flow. If you save enough to put down a large down payment, let’s say 20%, you should first check how much you can afford in payments monthly. The reason behind this is to leverage and keep funds liquid for other purposes. Remember there is no rate of return in equity. Therefore, the least amount you put as a down payment the higher the rate of return will be.

I like to always advise my clients never to put a big down payment if they can afford a higher loan amount. I tell them that keeping money liquid is critical in case an emergency should arise that will prevent them from working. I tell my clients that they should always have 6 months of salary in a liquid savings account or asset accumulation account to withdrawal at any time without having to refinance.

All of my clients will have a personalized Mortgage Plan that helps them save thousands of dollars over time on their mortgage. With these savings they can sit with a financial planner who will help them allocate those savings in an asset accumulation account. Not only are they increasing liquidity, safety, rate of return and tax deductions, but they are also planning for retirement and reaching the freedom point sooner where their assets have exceeded their liabilities.

Answered over 6 years ago

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