Mortgage loan : appraisal vs down payment


#1

I will be buying a house before my wedding, after the winter. Obviously, I will be buying the house on loan. I was searching online for the processes to obtain a mortgage loan.
This page helped me in getting a picture. https://www.butlermortgage.ca/mortgages/purchase/first-time-home-buyers/ But I have a doubt. It is written there about Appraisal and down payment. I have the money in hand for paying the 20% of the purchase price which helps me get a loan with an appraisal. However, I heard that when you are getting a loan the longer duration and less down payment can help you in taxes. Is this true?
What is the best plan? Buy with an appraisal or down payment? I have a good credit score of 670, which helps me get at a favorable rate.
Please share your thoughts on this.


#2

Hi Andy,

Your profile says that you are in Canada, which means you won’t get a tax deduction for mortgage interest (the deduction doesn’t exist in Canada). The difference between putting 20% or more down vs. putting less than 20% down is mortgage insurance. If you don’t put at least 20% down you will have to pay mortgage insurance on your loan, which will be added to the principal and paid as part of your monthly payment. Generally, if you have the 20% to put down and it won’t deplete your cash reserves too much, it would be recommended to put the 20% down.


#3

Also, even in the US the tax savings aren’t a good reason to get a longer duration and a larger loan. There are other reasons people might decide a longer duration is best for them, but paying an extra $1 to save 25 cents in taxes isn’t one of them. Also if you pay less than 20% down you need to pay mortgage insurance, which is like an extra fee that you don’t get back when you sell the house.

Example - lets say you’re in the 25% tax bracket and you’re deciding between a 30 and a 15 year mortgage. In both examples you’re planning to buy a $250,000 house. Using today’s rates and this calculator, assuming you can deduct all the interest every year at 25%:

  • $200,000 loan for 15 years at 3.625% - pay $59,662 in interest over the life of the loan. Deducting about $15k you’ll pay $45k total.

  • $200,000 loan for 30 years at 4.375% - pay $159,698 in interest over the life of the loan. You can deduct more, $40k, but you still pay almost $120k in interest! That’s $75k more

Don’t let the tax tail wag the financial decision dog.


#4

I couldn’t have said this better myself. There are a lot of people that mistakenly use the mortgage interest deduction as a reason to get a bigger loan or to not prepay their mortgage.

It’s just like buying a $100 item on sale for $75. If you didn’t need it in the first place, you still spent $75 when you didn’t need to!


#5

okay, I understood about it. So, it is always better to buy with max affordable money I can put down. And 15 years duration period looks ideal. Thanks for explaining to me the math. everyone.


#6

Hi there, I agree that it is always better to buy with max affordable money. There are many online sources available for a mortgage loan. Last year when my uncle was shifted to the new home he hired a professional moving company manhattan who also provides him a mortgage loan service.


#7

I agree with you always go with maximum money and less Mortgage Loans.There are many Mortgage brokers which can help you in guiding more about how to get loan at low rate.


#8

You look for a local federal credit union bank. They provide a lesser rate of interest compared to other banks or financial institutes for short- and long-term mortgage loans.