How A Large Down Payment Can Help You Build Equity Faster On Your Vacation Home

Posted on: 18 April 2017

For many vacation home buyers, this purchase may be your first non-primary-home real estate purchase. There's still a long way to go before you become a full-fledged house-flipper or real estate agent (if either of those is a goal of yours), but increasing the number of homes you own can be a great wealth management strategy. And the faster you build equity on this vacation home, the sooner you'll own it free and clear and can start thinking about what properties you'd like to buy next. Here's why making a large down payment is a good place to start if you want to build equity fast.

Pay now, save later

It may go without saying that the more money you include in your down payment, the less you'll have to pay off later. But did you know that a large down payment can also reduce the overall cost of buying your home? For one thing, the smaller your mortgage loan is, the less interest you'll have to pay. So unless you currently have your money sitting in an account that pays more interest than you'd be paying on a mortgage loan (unlikely), a large down payment will save you money overall. This means you'll be spending less of your money paying for the loan services and can put more of it towards the cost of the house.

Gives you a high percentage of ownership right from the start

You can look at your down payment as an instant equity builder. The higher your down payment is compared to the home's value, the higher your percentage of ownership (and thus equity) is as soon as you've made the down payment.

Gives you a great head start

Monthly payments are calculated based on paying back the loan amount over a given period of time, so all other things being equal, your large down payment means you'll have comparatively lower required monthly payments. This puts you in a great position to start making oversized monthly payments in order to get ahead of the game and pay off as much of the loan as you can as fast as possible.

As you can see, a large down payment can be the ideal way to get off on the right foot if you're looking to call your vacation home your own as soon as possible. Although you can take ownership and move in as soon as all the arrangements are made, there's a great sense of satisfaction in knowing that you own the entire value of your second home. When you find the right vacation homes for sale, talk with your agent about the best down payment options.