Why Putting a Large Down Payment on a Home Might Not Make Sense
Summary
In this video, I discuss the common practice of putting a large down payment on a home and explain why it might not be the best financial decision. I provide a simple math calculation to show that the savings from a lower monthly payment may not outweigh the opportunity cost of tying up a large sum of money in the home. I also touch on the importance of credit scores and suggest alternative ways to invest the saved cash. No specific action is requested from the viewers, but I encourage them to reconsider their approach to down payments.
Transcript
0:00 I see a ton of scenarios where people are putting 20%, 30%, 40%, 50% down, right? To me, that makes absolutely no sense, okay?
0:09 And I’ll always ask people why are you putting 30% down? Well, they’ll say, I need my payments lower. So, okay, let’s look at that math, right?
0:20 For every $10,000 you put into your home, depending on interest rates, it’s going to save you approximately $60 a month, okay?
0:31 So, if you do the math, $10,000 divided by 60 equals 166 months of saving $60 to pay. Pay back that $10,000.
0:42 Like, that’s a terrible deal. The only time I would recommend you putting a ton of money down is if you have to.
0:51 If your credit scores are also fan- tastic, you know, I would put 5, 10% down. Yeah, you’re going to have mortgage insurance, but it’s going to be low and you’re going to save a ton of cash.
1:03 I would take the cash that you’re saving and reinvest it. Let that money grow versus putting it into a non liquidity debt.
1:11 Right. You can’t access this, the money quickly. In real estate and yeah, we’ll just let your money grow unless you’re absolutely forced to put that money.
1:20 The end of the house.