How do you choose which mortgage structure is appropriate when buying a home?
There are several factors that you need to consider: If you have already decided on the house.  Did you prequalify for the mortgage loan - If so, did you lock in the rate. If you have not already done than your research is still valid. Consider two calculators first - Affordability + Mortgage calculator Advice :  If you can afford to pay 20% down then please do, Lesser monthly mortgage payment, you can save approx 400 $ per month, the above calculator will give you an exact idea. If you can afford go for 15 years loan - Lower interest rate over 2-5 years period. Do not assume the average ROI will + 8-10%. It all depends on market and has variable factors like city, area and demand.  In terms of Income your interest payment is Tax deductible at the end of the year. Go for 15 years loan - Lower interest rate over 2-5 years period. If you can afford to pay 20% down then please do. Do not assume the average ROI will +(8-10%). It all depends on market and has variable factors like city, area and demand. Down payment: Emphatically avoid PMI if at all possible; it's pouring money down the drain. Do 20% down if you can, or pay off enough to bring you above 20% and ask for PMI to be removed as soon as you can. Beyond that it's a matter of how much risk you want to accept and how long you'll own the place, and you'll have to run the numbers for the various alternatives -- allowing for uncertainty in your investments -- to guide your decision. Do not assume you will be able to make a profit when you sell the house; that's the mistake which left many people under water and/or foreclosed on. Do not assume that you will be able to sell it quickly; it can take a year of more. Do not assume immediate or 100% occupancy it you rent it out; see many other answers here for more realistic numbers.... and remember that running a rental is a business and has ongoing costs and hassles. (You can contract those out, but then you lose a good percentage of the rent income.) Double mortgage is another great way to dig yourself into a financial hole; it can be a bigger cost than the PMI it tries to dodge and is definitely a bigger risk. Don't.
In the US you can get a home warranty when you buy a house that will cover major repairs for the first few years of owning a home.  The costs vary based on age and the results of the home inspection.  Ours cost ~$250 a year.  This was put into our closing costs.  Unfortunately this market does have some disreputable companies that come im with prices that seem too good to be true.  As is usually the case they are.  Do research on the company you are getting the home warrenty from to make sure you are dealing with a reputable company that will honor its commitments. By having 20% down you will avoid needing Mortgage insurance which will save you a considerable amout.  My PMI cost me about $70 a month. However once you get to 20% equity in your home the pmi drops off.  So if you can put down 15% you should be able to get out from under your pmi in a few years if you want to keep that 5% cushion while making extra payments. The question is how much do you feel you need.  So far owning a 70 year old home my extra maintence costs have been around 2500 a year.  But they seem to be in 1k chunks every 4 or 5 months. If this isn't a case where you would be willing to forgive the debt if they can't pay, it's a business transaction, not a friend transaction. Establish exactly what the interest rate will be, what the term of the loan is, whether periodic payments are required, how much is covered by those payments vs. being due at the end of the term as a balloon payment, whether they can make additional payments to reduce the principal early... Get it all in writing and signed by all concerned before any money changes hands. Consider having a lawyer review the language before signing. If the loan is large enough that it might incur gift taxes, then you may want to go the extra distance to make it a real, properly documented, intra-family loan. To do this you must charge (of at least pay taxes on) at least a certain minimal interest rate, and they have to make regular payments (or you can gift them the payments but you still won't up paying tax on the interest income). In this case you definitely want a lawyer to draw up the papers, I think. There are services on the web Antioch specialize in helping to set this up properly, and which offer services such as bookkeeping and monthly billing (aT extra cost) to make it less hassle for the lender. If the loan will be structured as a mortgage on the borrower's house -- making the interest deductible for the borrower in the US -- there are additional forms that need to be filled. The services can help with that too, for appropriate fees. Again, this probably wants experts writing the agreement, to make sure it's properly written for where you and the borrower live. Caveat: all the above is assuming USA. Rules may be very different elsewhere. I've done a formal intractability mortgage -- mostly to avoid gift tax -- and it wasn't too awful a hassle. Your mileage will vary. "Given the state of the economy, and the potential of a rough near future for us recent grads (i.e. on/off work), I would recommend holding off on large purchases while your life is in flux.  This includes both a NEW car and purchasing a house. My short answer is: you need a reliable vehicle, so purchase a used car, from a major dealer (yes this will add a fairly high premium, but easier financing), that is 4-5 years old, or more.  Barring the major dealer purchase, be sure to get a mechanic to check out a vehicle, many will offer this service for a reasonable payment.  As people point out, cars these days will run for another 100k miles.  You will NOT have to pay anywhere near $27,000 for this vehicle.  You may need to leverage your 10k for a loan if you choose to finance, but it should not be a problem, especially as you seem to imply an established credit history. In addition to this, start saving your money for the house you would like to eventually get.  We have no idea where you live, but, picking rough numbers, assuming a 2 year buy period, 20% down, and a $250,000 home, the down payment alone will require you to save ~$2,000/month starting now. Barring either of these options, max out your money to tax sheltered accounts (your Roth IRA, work 401k, or a regular IRA) asap.  Obviously, do not deplete your emergency fund, if anything, increase it.  10k can be burned through in a heartbeat. Long Answer:  I purchased a brand new car, right out of school, at a reasonable interest rate.  Like you, I can afford this vehicle, however, if someone were to come to me today (3.5 years later) and offer me the opportunity to take it back and purchase a 4-5 year used vehicle, at a 4-5 year used car price, albeit at a much higher interest rate (since I financed), it would be about a 0.02 second decision. I like my car, but, I'd like the differential cash savings between it and a reliable used car more.  $27,000 is also fairly expensive for a new vehicle, there are many, very nice vehicles, for 21-23k.  I still would not consider these priced appropriate to spend your money on them, but they exist.  However, you do very much need a reliable vehicle, and I think you should get one. On the home front, your $400 all inclusive rent is insanely cheap.  Many people spend more than that on property tax and PMI each year, so anyone who throws the ""You're throwing money away!"" line at you is blowing smoke to justify their own home purchase.  Take the money you would have spent on a mortgage, and squirrel it away.  Do your own due diligence and research the home market in your area and decide for yourself if you think home prices have bottomed and will stay there, have further to go, or are going to begin to rise.  That is a decision only you can make for yourself. I'd add a section about getting expenses under control, but you said you could save 50% of your takehome pay.  This is an order of magnitude above the average.  Good job.  Try doing 50% for 4 months, then calculate your actual amount.  Then try to beat it." It depends on how much equity you have in your home. Scenario 1: Your home is worth $100K, and your current mortgage is for $100K (or more which means you are underwater.) In this case you can't get a 2nd mortgage because: That being said, you can use different portions of equity in your home as collateral for multiple mortgages, as long as none of the equity overlaps, but you may need permission from the primary mortgage bank first, for example: Scenario 2: Your home is worth $100K, and your current mortgage is for $80K meaning you currently have $20K in equity. It is possible to get a 2nd mortgage or home equity line of credit for $20K. As a side note, if your loan agent is telling you to use a different bank, it sounds like she is trying (and willing) to do something shady. If you are in Scenario 1, I'd find a new agent. I don't know any clever way to do what you're describing.  And, in a sense, you can see why there might not be one.  A mortgage isn't just a magical way to reduce your housing expenses; it's a tradeoff in which you agree to a long-term commitment in exchange for fixed costs (or at least costs with a prearranged structure) over that long term.  If you're unwilling to accept the obligation of paying for and maintaining the property over a long period, you can't really expect to reap the benefits of lowered costs.  Part of the reason people say buying is better is because people often do live in the same place for a long time, in which case, if they rent, they might miss out on savings they could have had if they bought instead.  If you're not going to live in the same place for a long time, buying may not actually be better for you. "A Tweep friend asked me a similar question. In her case it was in the larger context of a marriage and house purchase. In reply I wrote a detail article Student Loans and Your First Mortgage.  The loan payment easily fit between the generally accepted qualifying debt ratios, 28% for house/36 for all debt. If the loan payment has no effect on the mortgage one qualifies for, that's one thing, but taking say $20K to pay it off will impact the house you can buy. For a 20% down purchase, this multiplies up to $100k less house. Or worse, a lower down payment percent then requiring PMI.  Clearly, I had a specific situation to address, which ultimately becomes part of the list for ""pay off student loan? Pro / Con""  Absent the scenario I offered, I'd line up debt, highest to lowest rate (tax adjusted of course) and hack away at it all. It's part of the big picture like any other debt, save for the cases where it can be cancelled.  Personal finance is exactly that, personal. Advisors (the good ones) make their money by looking carefully at the big picture and not offering a cookie-cutter approach." "If you are investing in a mortgage strictly to avoid taxes, the answer is ""pay cash now.""  A mortgage buys you flexibility, but at the cost of long term security, and in most cases, an overall decrease in wealth too.  At a very basic level, I have to ask anyone why they would pay a bank a dollar in order to avoid paying the government 28 - 36 cents depending on your tax rate. After all, one can only deduct interest- not principal. Interest is like rent, it accrues strictly to the lender, not equity. In theory the recipient should be irrelevant. If you have a need to stiff the government, go ahead. Just realize you making a banker three times as happy.  Additionally the peace of mind that comes from having a house that no banker can take away from you is, at least for me, compelling. If I have a $300,000 house with no mortgage, no payments, etc. I feel quite safe. Even if my money is tied up in equity, if a serious situation came along (say a huge doctors bill) I always have the option of a reverse mortgage later on. So, to directly counter other claims, yes, I'd rather have $300k in equity then $50k in equity and $225k in liquid assets. (Did you notice that the total net worth is $25k less? And that's even before one considers the cash flow implication of a continuing mortgage.  I have no mortgage, and I'm 41. I have a lot of net worth, but the thing that I really like is that I have a roof over my head that no on e can take away from me, and sufficient savings to weather most crises).  That said, a mortgage is not about total cost. It is about cash flow. To the extent that a mortgage makes your cash flow situation better, it provides a benefit- just not one that is quantifiable in dollars and cents. Rather, it is a risk/reward situation. By taking a mortgage even when you have the cash, you pay a premium (the interest rate) in order to have your funds available when you need it.  A very simple strategy to calculate and/or minimize this risk would be to invest the funds in another investment. If your rate of return exceeds the interest rate minus any tax preference (e.g. 4% minus say a 25% deduction = 3%), your money is better off there, obviously. And, indeed, when interest rates are only 4%, it may may be possible to find that. That said, in most instances, a CD or an inflation protected bond or so won't give you that rate of return. There, you'd need to look at stocks- slightly more risky. When interest rates are back to normal- say 5 or 6%, it gets even harder.  If you could, however, find a better return than the effective interest rate, it makes the most sense to do that investment, hold it as a hedge to pay off the mortgage (see, you get your security back if you decide not to work!), and pocket the difference. If you can't do that, your only real reason to hold the cash should be the cash flow situation." "This seems to be a very emotional thing for people and there are a lot of conflicting answers.  I agree with JoeTaxpayer in general but I think it's worth coming at it from a slightly different angle. You are in Canada and you don't get to deduct anything for your mortgage interest like in the US, so that simplifies things a bit.  The next thing to consider is that in an amortized mortgage, the later payments include increasingly more principal.  This matters because the extra payments you make earlier in the loan have much more impact on reducing your interest than those made at the end of the loan. Why does that matter?  Let's say for example, your loan was for $100K and you will end up getting $150K for the sale after all the transaction costs.  Consider two scenarios: If you do the math, you'll see that the total is the same in both scenarios.  Nominally, $50K of equity is worth the same as $50K in the bank. ""But wait!"" you protest, ""what about the interest on the loan?""  For sure, you likely won't get 2.89% on money in a bank account in this environment.  But there's a big difference between money in the bank and equity in your house: you can't withdraw part of your equity.  You either have to sell the house (which takes time) or you have to take out a loan against your equity which is likely going to be more expensive than your current loan. This is the basic reasoning behind the advice to have a certain period of time covered.  4 months isn't terrible but you could have more of a cushion.  Consider things like upcoming maintenance or improvements on the house.  Are you going to need a new roof before you move?  New driveway or landscape improvements?  Having enough cash to make a down-payment on your next home can be a huge advantage because you can make a non-contingent offer which will often be accepted at a lower value than a contingent offer. By putting this money into your home equity, you essentially make it inaccessible and there's an opportunity cost to that.  You will also earn exact 0% on that equity.  The only benefit you get is to reduce a loan which is charging you a tiny rate that you are unlikely to get again any time soon. I would take that extra cash and build more cushion.  I would also put as much money into any tax sheltered investments as you can.  You should expect to earn more than 2.89% on your long-term investments.  You really aren't in debt as far as the house goes as long as you are not underwater on the loan: the net value of that asset is positive on your balance sheet.  Yes you need to keep making payments but a big account balance covers that.  In fact if you hit on hard times and you've put all your extra cash into equity, you might ironically not being able to make your payments and lose the home. One thing I just realized is that since you are in Canada, you probably don't have a fixed-rate on your mortgage.  A variable-rate loan does make the calculation different.  If you are concerned that rates may spike significantly, I think you still want to increase your cushion but whether you want to increase long-term investments depends on your risk tolerance."