better to try to put $ on your house or $ towards the princepal?

Question

When you buy a house,is it better to put as much as money as you can towards your house,or towards the principal on the house?And how do you do it?

Answer 1

When you buy a house, you usually get a loan called a mortgage. IF you put money down, you may opt for a shorter timespan saving you tons in interest. The money you pay straight up will lower the amount you need to finance, thus lowering the amount lost to percentage.

Paying toward principle is after the loan is made. You may "pay to principle" (on top of your monthly payment) which pays directly to the amount you owe, which in turn lowers the amount that can accumulate interest.

Obviously the more you put down, the less you have to finance and the more you will save.

How to? Have a lawyer at your signing. When you visit your mortgage broker, try to get the lowest possible rate (shop around, most will sell your mortgage to a larger corporation so they will be willing to go lower). Then talk about down payments and points. Then when you apply for the mortgage you can talk $ down.

MAJOR TIP: Sometimes the companies will try to "sell" you a way of paying "bimonthly" and the attractiveness to that is that you are paying your loan off faster. This usually involves a fee and other fine print.

You may pay towards your loan whenever you feel like it and you don't have to pay a fee to do so, so watch out!

Answer 2

The question is a bit unclear. To clarify the terms, the purchase price can be divided into 1) the downpayment and 2) the loan amount. The amount that you owe on this loan amount is referred to as the "principal".

I'm guessing that you are asking whether it is better to make a larger down payment or to pay additional money every month towards your principal. It is easy to do either one: either you arrange to pay more money at closing and take out a smaller loan or you pay extra money every month to the bank. (If your payment is $500, you might pay $600 instead, and the extra $100 would be applied against the principal amount that you owe. Or, you might continue making the $500/mo payment, but you also send in $50 every two weeks... same idea.)

Is this a good idea? It can be. The faster you pay off the loan, the less interest you will pay, in total. The downside is that the money is now tied up in your house, and you can't invest it elsewhere, or pay for emergency bills.

Beware putting too much money as down payment on the house. Don't be "cash poor". You might need that money later on to make your monthly house payment. Remember, you can put 90% down, if you like, but if you're late on your tiny mortgage because you used all your cash for your downpayment, they will still foreclose on you.

Answer 3

I did both. I put down 20% which saved me PMI, and in the last 4 years I have almost always paid more on the mortgage payment and that extra goes toward principal. At first it is a drop in the bucket, but in just 4 years my monthly payment is now over half to principal so I have paid off enough on this loan and extra to principal that puts me in about year 16 of the mortgage if I had paid normally. I will save thousands of dollars in interest even if I never overpay from this point on. I do plan on continuing to overpay and hope to own the house outright within 3 years.

Answer 4

Better to put as much down on your new house that you can to lower your monthly payments. Then monthly add whatever you can afford to your payment to speed up the payment of your loan. This will save you a lot of money in interest over the years if you are faithful to add to the principal payment. I bought a new truck and put a lot of money down. This brought my payment down to 250.00 per month. I have been paying quite a bit more per month, and in a space of 14 months I will have paid the loan off. The loan company sends me letters telling me that I won't have to make another payment until 2010. They hope that I will bite. What they don't tell you is that if I take that offer and wait until 2010 to make my next payment, my principal will grow as the interest keeps accruing. This is how banks and loan companies make their money. Interest.

Keep in mind that in buying a new house you may have to pay points. Then there is Title Insurance. You have to hook up utilities. So there is a host of expenses involved. You have to take a realistic look at what you truly can afford. Quality of life is better than a house that costs too much, with little money to pay, and a boat load of worry too.

Answer 5

we always put more money down, as it makes your house payment smaller. then we can pay more on the principal, when and if we have more to pay.
hope that helps!