House Loans and Down Payments

[samlawrence]

What is the average time it takes a person to pay off their house loan? What percentage is advised to put as the down payment for a house?

[Carl]

Typical home loan terms are 15 years and 30 years, and I'm starting to see 40 year loans creep up now. Generally, the shorter the loan term the higher the interest rate. But still, paying a 15 year mortgage at 5% will mean you will pay less than a 30 year mortgage at 4%. How fast you pay it off depends on how much extra you include with each payment towards the principle. For example, I have one rental property I acquired in 2002 on a 30 year loan which I paid off in 2013 or 14 (can't remember exactly). The early payoff saved me over $100K in interest payments. Working on paying off the 2nd mortgage now. 

If you want to play with actual numbers, use the attached spreadsheet. For protection against what I call "stupid typo errors" that can screw up the formulas, I've locked fields that should not be changed. If you want to unlock it, the password is the word "password" without the quotation marks.

[NCperson]

the percentage is really based on how much you can afford to borrow, size of home you want to buy, etc.

but here is the critical issue:

interest rates are generally the same if you put 20% or more down.  (yes, the rate can be higher if you are taking cash out in a refinance, purchasing the property for investment, etc, but if you are purchasing a home with the intent to live in it, the rates are generally the same if you put down 20% or more) 

for conventional mortgage the interest rate will rise as you put less down in the form of the mortgage insurance premium requirements.   basically with less th 20% down, the risk of you defaulting rises and the lenders will require mortgage insurance to protect against the risk that you default.  You will pay the insurance premiums.

for government loans, there is always a mortgage insurance premium (MIP) regardless of how much you put down.  So as you are able to put more down, the conventional loans are more cost effective. 

[AdrianG001]

Some people pay off their debt over 15 years; others take 30 years. There's no right way or wrong way to pay a mortgage; you just have to decide what makes the most sense for you. While the two most common mortgages are 15-year and 30-year plans, less common types are 10-year, 20-year, and 25-year mortgages.

20% Minimum Down Payment is advised.

Regards,

Adrian

Consultant