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How Much You Need to Save
You could become a homeowner for as little as 5% of the purchase price. Depending on the amount, your mortgage will be classified as either conventional or high ratio.
If your down payment is less than 20%, you may get a high-ratio mortgage that must be insured against default. That means you'll pay a one-time insurance premium to protect the lender in the event that you become unable to make payments.
While your down payment can be as low as 0%, keep in mind that the larger the down payment you make, the less your home will cost over the long term. It makes sense, then, to put down as much as you can afford to.
The following chart clearly shows how much you can save over the life of your mortgage by making a larger down payment. Here are the circumstances:
- House price: $150,000
- Mortgage rate: 8.00%
- Principal and interest payment: 7.63213 per $1,000
- Amortization: 25 years
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Scenario I
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Scenario II
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House price
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$150,000
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$150,000
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Down payment
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$15,000
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$25,000
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Total mortgage
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$135,000
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$125,000
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Monthly mortgage payment (principal and interest)
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$1030.34
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$954.02
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Total payments over 25 years
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$309,102
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$286,206
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Using the above example, an every additional $10,000 put towards the down payment - your total costs of borrowing over the 25-year period is reduced by $22,896.
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