Emily – but you are a smarty pants!

PT – sounds like you bought something you could afford – which is a good thing!

Enough Wealth – I don’t disagree with that point.

Pete – the insurance is a great reason for a down payment. When I bought my first house I didn’t have 25% so I had to pay $3700 in extra insurance which still rankles me to this day.

Investizmo – the amount of interest paid on the initial payment is determined by the amortization (ie 25 years) rather than the size of the down payment. Also – walking away from the house is only an option in the U.S. and even there I understand it’s only certain states that allow you to walk without recourse.

Nurse – if you have a 40% down payment then clearly you aren’t buying enough house. Seriously, congrats on the big DP.

Kyle – I agree.

Cheap – see previous comments – I completely agree.

Nobleea – interesting thought about chasing returns – I never thought of it that way before.

Al – too bad most house buyers don’t think like that.

Derek – I don’t agree with you because you are ignoring all the extra costs with owning a house ie taxes, maintenance. What if you rented and invested the difference? Which method will work out better?

Siddharth – no down payment is indeed a lending practice that should be only be allowed under certain circumstances. Unfortunately, everyone and their brother took advantage of it.

Mike

I do think that poor lending practicises like allowing people to own home with 0 or very less equity is one of the problem in the first place.

By having such lending practises the home owner basically made the mistake of over paying for a home. Which is the reason why the home prices in US were zooming in the 4 years prior to late 2005 or early 2006.

Now when the home prices started to slide down the home owner with little down payment or the Investor with little down payment and looking for capital gains from trading the property decided to cut the losses. When there are more sellers it becomes a buyers market and the prices fall further causing such people to move more into debt and eventually foreclosures.

Hence the amount of downpayment (larger) will have had a lesser imapct on the housing and the mortgage markets

If someone has fixed payments and purchase price in mind when they go house hunting, then the a downpayment reduces the amortization period. That’s where the value lies. Shorter amortization mean more going to principal and less to interest.

I don’t like the mortgage calculators that don’t show the total interest paid. People should understand the full cost of a mortgage and how much extending the amortization hurts.

I don’t think having no equity in a home makes you more likely to bail. Pretty much everyone who’s bought a car new has no equity in it, but you don’t see anyone foreclosing on them. Because you need a car (well, that’s debateable), and because you can afford the payment.

People are essentially chasing returns when they get rid of a house because they have no equity in it. They’ve come to believe that houses are investments, and now they’re showing a paper loss, so better move to something better. If you stop thinking of houses as investments (and more like savings plans), then you’ll care less about how much your house value has gone down (and conversely, how much it’s gone up).