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First Time Buyers: Low Down Payment Mortgage

A low down payment mortgage is simply a low deposit mortgage, which can be anything from making a less than 25% deposit to no deposit at all. Not long ago you'd need over 20% of the total property value as a deposit to purchase a home, but today there are many alternatives to accommodate first time buyers or anyone who doesn't have a substantial amount to put down.

Most low down payment mortgage packages are great options for first time buyers because you don't have to save up that daunting deposit. However, there are a few pros and cons to low down payment mortgages.

 

Pros

  • Low down payment mortgage products allow people to invest in real estate and get on the property ladder without having a large reserve of cash behind them, ideal for first time buyers or young homeowners.
  • You can enjoy potential tax advances with a low down payment mortgage and build equity by paying down loans in principle each month.
  • Money can be freed up to invest elsewhere or cover other expenses.

 

Cons

  • As expected the rate for low down payment mortgages are a lot higher than other mortgage products. First time buyers aren't always "trusted", even with a good credit rating, as they don't have a strong financial history behind them, so lenders will increase their fees to cover any potential loss through non-payment that may occur. Without a large deposit if you eventually don't pay the mortgage for any reason, the lender is left with nothing but monthly payments, which is why a higher fee is included to bridge the gap.
  • Loan terms are normally longer, which could be a problem if you don't intend to keep the property for life or house prices hit rock bottom.
  • If property values fall in the area homeowners may end up paying more than their property's actual value depending on the length of the loan.

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