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Is your down payment too big?

For many people, especially those buying their first home, it may seem as if the larger the down payment they can make, the better. But there’s a point where your deposit could be too large given your financial situation. Before emptying out too much of your savings account, ask yourself the following: Are you going to have enough left over to cover closing costs and moving expenses? Have you retained enough to serve as an emergency cushion in case something in your new home breaks down or your car quits? You may discover you’re better off keeping some of your savings right where it is.

Start with the minimum

A 20 percent down payment has long been considered the standard when buying a home. Lenders do approve mortgages with smaller upfront payments -- some even offer zero-down loans. But most experts agree that if you can put 20 percent down, you should.

Lenders offer more favorable interest rates to home buyers who make a down payment of at least this size. What’s more, you’re more likely to attract offers from several

lenders and to find a mortgage with a good interest rate and the terms you want.

A 20 percent down payment also allows you to avoid added costs. When you borrow more than 80 percent of your home’s value, lenders require you to purchase private mortgage insurance (PMI), which typically costs about half a percent of the loan’s principal -- about $83 per month on a $200,000 mortgage. You can avoid these premiums by putting 10 percent down and getting a second “piggyback ” loan for the remainder, but this too comes at a price. A 20 percent down payment sidesteps both of these additional charges.

Determine the maximum

So, should you make a down payment larger than 20 percent? It’s true that every extra dollar you put down reduces your monthly payment and the amount of interest you’ll pay over the life of the loan. But you may be surprised at how the numbers break down.

1. Consider how much interest you will save

Assuming you’re buying a $200,000 home with a 6 percent mortgage amortized over 30 years:

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