When making a big purchase decision with financing involved, such as purchasing a home, one of the key decisions for the purchaser is how much of a down payment to make. Often a minimum down payment, such as 20% on a home purchase, provides some limitation on the options that are available. However, in some cases a rigid requirement does not exist, and in others it may advantageous for the buyer to make a larger down payment than required.
In general, larger down payments are better than smaller ones, as this results in lower monthly payments and less interest paid over the life of the loan. However, other factors such as your tax bracket and, in particular, the return you can earn on alternative investments can influence this, and may lead to a scenario where a lower down payment is better for your specific situation.
VisualCalc’s Down Payment Comparison Calculator can help you determine what down payment is optimal for your specific situation. After entering inputs such as the purchase price, interest rate of the loan, loan term, your tax rate, and the return you can earn on alternative investments, the calculator will let you compare two different down payment scenarios, and decide which one is best for you.
