Is it worth it to save 20%?!

5 Replies

This is one of the biggest questions I have that I keep in my mind.

Is it worth it to save 20% to skip out on mortgage insurance? To save for a house in this decade in Ontario is absurd.

Is it a rookie move to put 5% down and pay the mortgage insurance?...should I stick it through for years of saving to then have the money for a 20% downpayment?

Tell me your experience! THANKS

@Cameron Chambers the more you can leverage, the better. There was a time (~15 years ago) where zero down mortgages were available. The catch... I had to carry a LTV of 110% (I had a $110k mortgage on a $100k property). But... no money left my pockets and I got infinite return. Put as little down as possible and get going, instead of waiting IMHO

@Cameron Chambers PMI or no PMI doesn't matter as long as the numbers work.

Another way to look at PMI (instead of a waste of money as most think of it) is it increases your interest rate. For example, with a 4% interest rate and PMI of $75/mo, your effective interest rate may become 4.5%. Can you find deals that make sense using a 4.5% interest rate? Of course you can. Don't let the thought of PMI hold you back from a deal.

If you wait "years" to save up for the 20% down payment to save $75/mo for no PMI then how many deals will you have passed up?

If you put 5% down it takes about 5 years of mortgage payments to reach 20% equity.  But assuming house value increases at 3% a year you can get to 20% in about 3 years.   Can you save 20% on your own faster?  And 20% of the new house value because don't forget that price is going up.  Unless you can get to 20% in a short time buy now.  10% down reduces mortgage insurance to 3% which helps so that is a nice amount to put down if you can but don't be affraid to do 5%.

There are a few different issues to consider here.

One key issue is the timing, getting mortgage approval, and another issue is the overall cost.

If you are looking to buy a house to live in right now, then getting the 5% down payment might be worthwhile. With 5% down payment, you can get into the market before home prices rise, and avoid costs related to renting.

In the majority of cases, the 5% down payment is not a significant barrier. Most people have more difficulty meeting the employment, income, and credit score requirements.

With 20% down you don't need mortgage insurance and the mortgage approval requirements are a bit less strict. Mortgage insurance does increase the overall cost of the mortgage slightly, but not by much. The current bank mortgage rates are lower than they've been in decades.

For me personally I would go with the 5% down mortgage right now if I could qualify. I am pretty comfortable with risk though, and am not overly concerned with the value of my property that I am living in long term. If you are more risk adverse, you may want to wait and save up the 20% and see if house prices decline.