As we talked about in the previous article, depending on your down payment, you could have to take an insurance. How much will you pay for this protection if your down payment is too low? It is simple to calculate.
Greater is the difference between your home mortgage loan and the price of your new house and greater the percentage will be to calculate the premiums of your insurance.
In other words, if your down payment is minimal, higher will be your premium.
Here is an example. Imagine you are going to buy a home for $250,000, which is the average price of urban housing, with a down payment of 5% and you think you can afford it. You will have to pay premiums of at least 2.75%
Moreover, if you can manage your debts, you can make a down payment of 5% by using various funding sources, including a loan, which will help you to purchase the house.
If your down payment comes from different sources of funding, your insurance will be higher, say 2.9%. 2.9% of $ 250,000 is $7,250.
So, you can choose to pay this amount separately or add it to your home mortgage :
House: $250,000
Down payment (5%): $12,500
Home Mortgage Loan: $237,500 ($250,000 – $12,500) + $7,250 (2.9% insurance premium) = $244,750 (almost $250,000, the price of your home)
As you see, your down payment is almost completely canceled by the price to pay for insurance…
And if you choose to include the amount of mortgage insurance in your mortgage loan pay instead of paying quickly and separately, this premium will cost more than $11,000 (several thousands dollars more in interest fees) if you choose an amortization period of 25 years.
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