Down Payments Oddly Stable During Inflation
- Author: Michael Bordonada
- Posted: 2024-01-14
Food, fuel, and housing are all up exponentially compared to just last year, and well above what most people can actually afford compared to a few years ago. Even still, there's a huge demand for housing out there, and qualified buyers still want to move. They save up some money for a down payment, qualify for a mortgage, and they try to live life as normal.
One thing you may have noticed with the down payment structure of houses in particular is that the percentage rates aren't actually going up.
In fact, in some instances, they're even down, with banks willing to accept only 15% instead of 20% for a down payment.
This is a bit weird to some, seeing as the prices of everything else under the sun have gone up tremendously over the past few months. Whether it's the fault of Putin, printing money, or random politicians in Texas, the fact is that prices are up.
Blaming it on someone doesn't fix the issue. But why have down payment rates stayed the same or even lowered for homes, automobiles, etc?
It's Because the Payments Will Be Higher
Your payments are still going to be higher, regardless of what the small percentage differences are. 15% of $400k is a much larger lump sum down payment than 20% of $200k. So, it's just a surface trick being played on you.
Because prices of goods and properties are up so massively, paying the same percentage for a down payment, or even a bit lower, still means you're paying a lot more in total. Plus, by holding the rate percentage lower, you're more likely to sign something with an adjustable rate mortgage that absolutely gouges you in a few years.
Always Look Before You Leap
Home prices are exponentially higher in 2022 than they were in 2020, and much more than they were 10 years previous. So when a potential home-buyer sees that the down payment is still only around 15 to 20%, they believe that the home is thus more affordable to get into. However, there are two things here that you have to watch out for.
As you probably already know, that 20% on $300,000 is a whole lot higher initially than the 20% on $150,000. You would only have to put down $30k a few years ago, whereas that's now doubled in terms of the initial down payment. Even still, some believe that if the percentage of the down payment hasn't risen, therefore the mortgage rates won't adjust more and leave them paying a much higher interest rate.
To be clear, these things are totally tied together to lock you into a higher payment structure. As mentioned previously above, the only reason that mortgage lenders aren't forcing the percentage to go up is because the total is higher based on the home's selling price, and because it's going to entice people to sign adjustable-rate mortgages that may end up gouging them down the road.
You have to be careful with these down payments. This goes well beyond down payments for homes too. Although this is where you will put the biggest down payment forward toward the purchase of a product, you're still going to run into these sorts of issues on everything from automobiles to living room furniture sets that you purchase with a down payment. These companies are in business to make a profit, and they know what they're doing.
By not raising the percentage rates on the down payments, they're giving you the appearance as if they're charging you less overall. In fact, because the price tag on so many items has gone up, some places are even lowering their rates to 10 or 15%, so you actually are paying less per down payment, at least per the percentage.
Though you're still paying more in total than you were a few years ago, and you're still likely to get hit with higher interest payments as you go forward.
Your goal should always be to read over the fine print of all of these contracts and to negotiate something that's favorable to you. If you cannot find a favorable contract, simply take your business elsewhere.
There are all sorts of different options out there that you can entertain without being locked into some payment structure that's going to gouge you.
