I have a loan all set and ready to go, but I have a few thousand that I would like to put down. So instead of 10% it can be something like 11%. Is it possible without telling the bank first? Does it make sense to do? I want to lower the monthly payments as much as possible.
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1See also: money.stackexchange.com/questions/7352/… -- though given your goal of lowering payments, I'd reverse my conclusion about "not putting it into the down payment". (Putting it in the down payment will cost more interest in the end, but you'll get lower monthly payments.)– bstpierreCommented May 5, 2011 at 14:49
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3 Answers
Yes, you may do this at any time before signing - but to make a change like this after the official loan documents have been drawn up will cost you extra fees. The typical redraw fee is around $200 in CA.
Does it make sense to do so? No, it does not. If you have an extra 1%, it would probably be better to use that money to purchase a lower interest rate. Here's an example:
Let's say you're buying a $200,000 house and your offered interest rate is 4.75% (just an example).
With 10% down you'd have a loan amount of $180,000 and a p&i payment of $938.97 per month. With 11% down you'd have a loan amount of $178,000 and a p&i payment of $928.53 per month.
Now let's pretend you buy your interest rate down to 4.375%. With 10% down you'd still have a loan amount of $180,000 but your p&i payment would be $898.71 per month.
Even though the last option gives you the best payment, if I were in your shoes I'd stick with the 10% down and save that extra cash in the bank for a rainy day. Buying a home comes with a lot of new expenses and many are unexpected.
Good luck!
Check to see if you can do this at this point.
When I was refinancing the mortgage on my last house, I put a sizable "extra" chunk down like you're planning to do, but the amount of the loan had already gone through the processing (for lack of a more specific term). My extra money went toward principal, but my payment was still the same as if I hadn't put any extra down.
If you find out that it's too far along in the process, not to worry: extra emergency fund isn't a bad thing to have.
As other people have said, a few thousand dollars isn't going to make any significant difference in what you pay - if you put an extra 1% down, and redraw all the documents accordingly, your payments are going to be roughly 1% less per month. So, for example, $1800 per month would become $1780 or so per month.
You're much better off keeping the money as an emergency fund: When you buy a house, there are a lot of things that can go wrong (as is the case with your car, if you have one, and with medical expenses, and helping out a relative, not to mention losing your job, and so on). It doesn't sound like you have all that much money, because if you did, you would have put 20% down and avoided Private Mortgage Insurance, saving yourself a lot more money than 1%. So having a few more thousand in the bank sounds like a good thing.
