To buy a property such as a bungalow or flat, there are a number of people who wish to take home loans Australia. When you seek advice from any property expert regarding down payments, most of them recommend paying a large sum of money as down payment. But the most vital question that often remains unanswered is the ideal sum of money that one should pay as down payment while taking home loans Australia. There are many who wish to avail quick approval car loans also.
Generally, down payments are large in amount. It is the first amount that the buyer needs to pay to the seller. Irrespective of the percentage that the borrower puts down as the down payment, it is always taken as a part of principal of the loan taken.
It is advisable to pay large sum of money as the down payment, as it never goes as a waste. This is so, because you will not be paying interest on that amount later on. It will make your monthly payment installments smaller and it will reduce the interest rates drastically. The most significant advantage of paying a huge sum of money as down payment is, you can prevent PMI or private mortgage insurance.
Reduce Mortgage Loan Payments
Paying a large down payment will help you enjoy reduced mortgage loan payments throughout the entire period of home loan financing. Applying general mathematics one can see, if the principal amount is reduced keeping the number of years same, monthly installments automatically become lesser. Also, with lesser monthly installments the interest rates get reduced. Therefore, at the end the borrower will need to pay less.
Lower Interest Rates
The initial LTV or loan to value ratio affects the interest rates. If you take the amount remaining on a mortgage loan and divide it with the appraised amount of the house or property, it will give you the LTV ratio. A lender takes the amount that the borrower is left to pay into consideration before finalizing the interest rate. The lower the LTV ratio the better it is for the borrower and for that to happen the borrower will have to pay a large down payment.
Private Mortgage Insurance
The issue that comes into picture is PMI or private mortgage insurance. PMI is a security asset that lenders want from the borrowers, if the down payment is less than 20% of the total cost of the property. It is due to this reason most property experts, advice borrowers to pay at least 20% of the total property value as down payment.
PMI is paid annually and generally costs in between 0.5 to 1 percent of the properties evaluated price.
There are many brokers or agencies that you can contact to get quick approval car loans.
Taking into consideration all the above mentioned points, it is clear that one should try to pay a major portion of the property’s value as down payment. It has several unmatched advantages.