I am looking into buying a $400K house with my wife. We currently do not own a home and do not have kids. We are both employed and my wife is a tenured public teacher.
As of present, we can put a 40% down payment and still have enough left for initial fees, 12 months emergency fund and items for the home.
Is it wise to put down such a large down payment?
I’m reading conflicting reports that investing such a large down payment in this market is bad because of the fluctuating real estate prices. However, I don’t understand how paying interest on that extra borrowed money is any better.

BZA,

Congratulations on being so fiscally responsible. Enjoy your new house.
Yes, I would put 40% down if you have the emergency fund.

The more you borrow the more you have to pay in interest. The more interest you pay the bigger tax write off you get.

You need to ask your tax consultant if you can take advantage of the extra interest come tax time. If not put the 40% down.

Quote:

However, I don’t understand how paying interest on that extra borrowed money is any better.

It's not and it NEVER is.

Only bankrupt bankers and brain dead broker dealers tout how "borrowed" money is a good thing or that the tax deductibility of mortgage interest is somehow mathematically better than having the income in the first place. It never is.

Broker Dealers and their certified clueless clown Registered Representatives have been advising clients for the past 10 years to refinance or take out a home equity loan and put that money in the market and you'll be way ahead. That's "how" they find investment money where no money actually exists.

They characterize home equity as a "dead asset."

We've all witnessed how well that type of voodoo financial advice has worked out. Bankers and Investment Firm Brokers are an incestuous duet.

True story:

I know a person who was talked into taking out a home equity loan from a so-called financial advisor at the bank 3 years ago so she could pay "cash" for a Corvette and tax deduct the interest.

The home loan is still outstanding, the house is upside down loan to value,... but gee-whiz.....she DID PAY CASH FOR THE CORVETTE.

Americans are broke because they want to be.

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

See, that's what I NEVER understood. Borrow $50K more, and pay $2,500 extra interest per year on that amount...then get what, 16% of that money back!?!? Wow, get $400 back in a tax refund? You still spent $2,100 in interest!!!!

I don't understand why people say, "but you get a tax break" when it comes to borrowing insane amounts of money for a home, don't they realize that you are paying for all of thay money + more!?!?!!?

Exactly bza123!


Simple 4th grade math is all ones needs to do.

Follow with me:

For every $1.00 of mortgage interest a person pays in a 28% tax bracket they get back 28 cents on the dollar.


Had that same $1.00 of mortgage interest been shown as taxable income they would have paid 28 cents to the Gubment but they keep 72 cents in their pocket.


Who's better off?


A person with 28 cents in their pocket or the person with 72 cents in their pocket.

__________________
Gary Spicuzza, *SAFE
Copyright 1956.
No Rights Reserved.
*Self Appointed Financial Expert

I agree, you should make the down payment since you can afford it. These low and no down payment home loans were created to facilitate people who wanted to buy a home but could not come up with at least a 20% down payment. With no/low down payment loans the banks could make more loans meaning more money to them.

I usually suggest to my clients in your position to put the money down on the house and establish a line of credit (LOC) against it. If they ever see an opportunity to make a quick profit on a project pull the money from the LOC, do the project and payoff the line with the proceeds (interest is only paid on the amount of the LOC that is actually used). Talk to your investment/accounting/tax professional for proper advice on any potential investment though.

The smaller the down payment the better for the banking industry. As for the rest of us the less interest we pay the better. Put the 40% down and forget it, if your market's home prices are still going down the only thing you could do is wait to buy.

Has anyone ever noticed that the better the bankers where doing the worse the rest of us did.

Anyone interested in seeing what debt really costs check out the example on Budgetingsense.com's Cost of Debt Example just follow the below link.

Personal Budget and Budgeting

All great advice. 4th grade mathematics. Put the 40 down and continue to watch your savings grow.

Well, the bigger the downpayment, the less interest you will have paid at the end (provided all other things are equal). Just make sure you have a good sum saved up in case one of you can't work for whatever reason. I was in a similar position about 7years ago, and because I didn't leave much in the account I was struggling for a while. You can check this calculator, which will show you the breakdowns.