Down payment/mortgage questions re: vacation house

[ohgillian]

Can you help me think about this? I think I know what to do, but I want to talk it out.

H and I will likely buy a 2nd home, and the mortgage broker advised us to put 20% down. (I specifically asked about a bigger down payment and that was his reply.) I didn't ask why, but I could ask. For ease of wording this post, down payment funds are in "Account."

I want to put down more like 50% so that the mortgage payment will be more manageable. I know that we could pay part of the mortgage out of Account each month, but something about paying an ongoing expense out of one-time funds (vs out of monthly income) doesn't sit right with me. 

Do I want to do a 20% down payment, then make a lump sum payment and recast the mortgage? If not, what do I want to do here?

Thanks.

[jinkies]

I think I am confused about your question.

Based on the lead-up, I was expecting you to ask whether you should stick with a 20% down payment with a higher monthly payment, or put down 50%.

But I think you are asking whether there would be an advantage to only putting down 20% initially, but then making a big lump sum to recast?

I'm honestly not sure there is any advantage to recasting vs just putting down the full amount from the beginning. My understanding was that recasting was more for people who did not have the full amount that they wanted to put down when initially setting up the mortgage.

I would go back and ask your mortgage broker why he recommended sticking to the 20%. If you have an accountant to talk this over with, that would be ideal.

[ohgillian]

Nov 1, 2021 13:06:51 GMT -5 jinkies said:

I think I am confused about your question.

Based on the lead-up, I was expecting you to ask whether you should stick with a 20% down payment with a higher monthly payment, or put down 50%.

But I think you are asking whether there would be an advantage to only putting down 20% initially, but then making a big lump sum to recast?

I'm honestly not sure there is any advantage to recasting vs just putting down the full amount from the beginning. My understanding was that recasting was more for people who did not have the full amount that they wanted to put down when initially setting up the mortgage.

I would go back and ask your mortgage broker why he recommended sticking to the 20%. If you have an accountant to talk this over with, that would be ideal.

Thanks for responding! It's probably a confusing question b/c I'm confused. He specifically said that we shouldn't make a bigger down payment and I guess I don't know why he recommended that. Except maybe b/c it cuts into his commission? I think you're right, I need to go back and ask him more directly about this. 

[mokes]

If I had to guess, he might be answering from the standpoint of what's most advantageous for the loan -- i.e., he's saying you won't get any better of a rate by putting more down so no need to do so. (When we bought our second home, there wasn't any additional benefit rate-wise to putting more down.)

If you want a lower payment, then I'd put more down now. You'd probably come out ahead mathematically by investing the difference instead, but without knowing the actual numbers I don't how meaningful that'd be. If you'd have more peace of mind with the lower mortgage, there's something to be said for that, too. It's definitely an ongoing debate in my house.

[Deleted]

I don't know if it's the same for second-home mortgages but depending on the difference you're talking about, when I was refinancing, I asked about paying off early and recasting because we were going to make a substantial payment once proceeds from our rental home closed. Our broker advised us to do it after the refinance was complete because he said the rates were not as good once you dropped below $200k.

[ohgillian]

Nov 1, 2021 14:29:49 GMT -5 @princessbubbleyum said:

I don't know if it's the same for second-home mortgages but depending on the difference you're talking about, when I was refinancing, I asked about paying off early and recasting because we were going to make a substantial payment once proceeds from our rental home closed. Our broker advised us to do it after the refinance was complete because he said the rates were not as good once you dropped below $200k.

I guess this is one thing I'm wondering about - if there's a disadvantage to putting more down. I'll ask more specifically. 

[dr.girlfriend]

He may also just be trying to give you general financial advice. Historically if you invested that extra money in the market instead of using it as a downpayment it would way outearn the amount you are paying in interest on the mortgage, especially with interest rates so low right now. But, of course, there's risk to that, of market losses and/or you not actually following through with investing it (not trying to insult you personally, just something that's happened to me because I always mean to get around to investing and in the end I probably should have just paid off my mortgage, lol)

[dancelnow]

The only disadvantage is the loss of opportunity to invest the cash because interest rates are so low. But you have to balance that with the non-tangible benefits of less debt. If you put more down, you can also afford to shorten the length of the loan. That can bring down your interest rate and total interest over the life of the loan while paying the same per month as if it you’d put 20% down.