Pros and Cons of a 20% Down Payment

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June 28, 2023

At PHL Capital, our vast experience in real estate mortgage financing allows us to understand the nuances of buying a home. One critical aspect that perplexes many potential homeowners is how much they should put down when purchasing a property. That is why we have put together some information about the pros and cons of a 20% down payment.

Learn answers to some of the most commonly asked mortgage questions.

Pros of a 20% Down Payment

1. Lower Monthly Payments and Mortgage Interest Total

One of the biggest advantages of a 20% down payment is that you will end up having significantly lower monthly payments, leaving you more room to spend your money on other expenses. At the same time, this means that you will have to pay much less in interest by the end of the loan term.

2. Avoiding Private Mortgage Insurance (PMI)

A down payment of less than 20% typically requires PMI. This insurance protects the mortgage lender if you default on the loan. With a 20% down payment, you will save money by avoiding PMI premiums.

3. Equity Building

A larger down payment means you will start with a higher equity in your home, providing financial stability and more borrowing power in the future.

Take a look at a few more first-time home buyer tips.

Cons of a 20% Down Payment

1. Higher Upfront Cost

While a 20% down payment reduces your mortgage payments, it may require a substantial amount of money upfront, which can be a barrier for many prospective homeowners. This could potentially strain your savings, leaving you without a safety net for emergencies or other investment opportunities.

2. Market Volatility

Real estate values can fluctuate. There is a risk of your home depreciating in value, resulting in a loss of your initial investment if you decide to sell.

3. Time-Consuming

Saving for a 20% down payment can take a considerable amount of time, potentially delaying your homeownership dreams.

If you are looking for mortgage advice, make sure to contact the expert team at PHL Capital and book a consultation. You can also reach us by filling out a website contact form. We are one of the best partners you can have in BC’s Lower Mainland when it comes to understanding the nuances of down payments.