From what I have come to understand 20% is the amount you ideally pay down on a house primarily because personal mortgage insurance isn't required.
One risk I would like to hedge if I buy a house is the possibility of losing my job or circumstances changing.
I realize ideally this would be accounted for as part of an emergency fund.
Here's another scenario:
- I save 20%.
- I take out a years worth of payments let's say on the order of $20,000 and what's left is my initial down payment ($40,000 on $300,000).
- I then forward pay a years worth of payments off of the front of the loan.
- I continue to pay payments as usual with a year of buffer.
- PMI is no longer required since I have already met 20%
Since no interest or very little interest has acquired when those first payments are applied it should be almost the same as if I paid it off of the principal (slightly higher monthly payment). In conclusion, I'm trading a slightly higher monthly payment to have a years worth of buffer for my payments.
Is my understanding of this correct? Would this be ill-advised for any reason?