Buying an apartment - recommended down payment

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for31
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Buying an apartment - recommended down payment

Post by for31 » Fri Mar 05, 2021 12:41 pm

Hi All ! Asking for a word of wisdom :) I am a permanent resident in Chile and I would like to buy an apartment in Santiago. I am wondering what would be the recommended amount of down payment on a mortgage ? 5%, 10%, 20% , any other number ? What would you recommend to pay attention to ? Any advice is highly appreciated !

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Re: Buying an apartment - recommended down payment

Post by Britkid » Sat Mar 06, 2021 12:10 am

It depends. If you have a million dollars, why not put down 100%!

Most people usually put down the majority of their money, like if they have 50 million savings they typically put 30 or 40 million on the deposit because they want to live in a better house or think the prices will go up.

20% is a solid bet usually.

In 2019 my bank told me I would have to put 20% minimum, but this year they are offering me deals where I only put down 10%.

By the way, you know it might be hard to get a bank to give a mortgage to you if you are a foreigner, especially if you don´t have a record in Chile of earnings and financial records generally here.

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Re: Buying an apartment - recommended down payment

Post by Jamers41 » Sat Mar 06, 2021 10:06 am

For at least the last several years banks here have generally required 20%, supposedly there are a few now that will finance up to 90% but it seems odd to me that banks these days (during the uncertain Covid era) would be taking greater risks.

So I would say 20%.

I myself currently have our house for sale and hope to be moving to a new one where we will put down over 50%......fingers crossed.

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Re: Buying an apartment - recommended down payment

Post by admin » Sat Mar 06, 2021 11:35 am

how much you put down, along with how long the mortgage is, also to a great degree determines your interest rate.
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Re: Buying an apartment - recommended down payment

Post by PXYC » Sat Mar 06, 2021 7:13 pm

You should also consider that your credit will probably be in UF, which is always moving up, so this means the amount due will always be moving up as well. This for me is a good argument to come up with the highest deposit you can, considering you will not need the money.

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Re: Buying an apartment - recommended down payment

Post by nomad747 » Sat Mar 06, 2021 8:43 pm

I purchased an apartment in Santiago Centro in 2017 and the minimum standards then to finance with a mortgage through a bank was a minimum of 10% for property (apts, houses, etc) and minimum of 20% for land purchases without a building.

But I agree with Admin, that the combination of down payment amount and length of the mortgage affects the interest rate greatly....really, you'll want to settle on a bank or a mortgage broker and then work out several scenarios with them to see what works best with your liquidity/credibility.

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Re: Buying an apartment - recommended down payment

Post by admin » Sun Mar 07, 2021 7:03 am

You can go in to your bank and your executive should be able to run a simulation of what they can offer for interest rates given different down payments and length of mortgages scenerios.

Rember in chile you are paying UF + whatever interest rate.

We did not see a huge difference in the length as far as interest payments, just in the size of the monthly payment.

I typically prefer to have a longer mortgage runway, with a smaller monthly payment, to allow more wiggle room if for whatever reason we get in to financial trouble; even if we could pay more every month. I prefer to have the flexibility to pay down the loan, or not, at my leisure. If I got a bit of extra money, and no better idea on how to put it work, then I will make an extra payment on the principle. We did time our mortgage to 15 years, to insure that our mortgage would be paid off well before we start entering retirement.

I have 1x leverage rule for my life. I never take out more debt, than I could not pay off in a short while with some other relatively liquid investment / asset. That is in the event of some sort of financial catastrophe, especially when it effects the roof over my head. Even if I never have to do it, it just makes me sleep better at night. I don't want to be one of those people worrying about being able to pay the dam mortgage. seen that just stress way too many people out.

I look at it as, I have sufficient money to pay cash for my house, but I can put that money to work somewhere else (e.g. stock market, other real estate, etc). As long as those numbers continue to make sense, fine. When they start getting stupid (e.g. sudden bout of hyper inflation), I will hit the emergency stop button and pay off my mortgage. Luckily, where I live the property prices increase more than the mortgage rate, and probably always will due to the cultural perception of Frutillar as a desirable place to live. so not too terribly worried about it.
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Re: Buying an apartment - recommended down payment

Post by admin » Sun Mar 07, 2021 7:30 am

I would caution however, that due to what we do, we have a real time window in to the property price trends in our area. I think we handled a couple million dollars in property deals in our area last year, in the middle of the pandemic. Mostly parcels similar to the one we live on. We would see a collapse in the real estate market sooner than the banks would, because a lot of our deals are with cash buyer's (mortgages take time to process), and they are actual closing prices, not just what people advertise they want for their properties. We also get fairly real time trends in most the major saught after areas around the country, that also acts like a cannary in the coal mine.

Like the central coast vacation apartments and then los condes prices would start collapsing first, as the "new rich" / middle class would have to retreat from those areas. In fact, last year we seen that happen to some degree. Was not sufficient to really make me nervous, but still kept one eye on it.

So if you are looking to buy, now is probably not a bad time to do it. lots of supply of apartments, low interest rates, etc.

My wife and I even had a moment last year where we exchanged looks with a 'oooo, glad we did not buy that apartment', as a few years ago we seriously went apartment hunting in los condes because we were in santiago a lot for business and already paying rent on an apartment there. I hate apartments, and just could not bring myself to pay that much money for a concrete box with like 20 million pesos of materials in it (yea, that is what it cost to build one of those apartments, or less). I would probably say the same thing about a penthouse overlooking central park in NY too. I am just not an apartment person; and the pandemic just reinforced that view.

But, if you are in to that, or need to be there, not a bad time to buy. I am sure someone will pay a higher price for it in a few years as the economy gets sorted out.
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Re: Buying an apartment - recommended down payment

Post by admin » Sun Mar 07, 2021 7:55 am

oh, another thing that anyone thinking about taking a mortgage in chile should know, is how foreclosures work in Chile. oddly, I don't think we have talked about it much on the forum (I figured we talked about everything over all these years).

Like in the States and many other places, when a bank forcloses on a property, they take possession of the property.

Not in Chile. The bank has to go to court and prove the debt. The court then certifies the debt, and orders the property to a public court auction. when the property is sold, the bank is only entitled to their debt; not the property.

so say you buy a property for 100 million pesos. you pay the mortgage down to 50 million. The market property value goes up to 200 million over several years. Let's say, for whatever reason you stop making payments at 50 million pesos remaining.

The minimum auction price starts with the "legal value" or the tax assesed value. In many cases that is almost always far less than the market value. so, let's say the legal value is only 20 million pesos for tax purposes.

so the auction would start with a minimal bid of 20 million. The bank, as it is owed 50 million (plus fees, interest, etc). They can use their debt they are owed, and can bid 50 million and aquire the property. They could also add money to that 50 million, to win a competive auction. They rarely do that, as they prefer to get their money and get the bad debt off their books. It does happen sometimes.

However, anyone else, with more than 50 million could outbid the bank. so say a property goes for 150 million at auction, won by a third-party. The bank is only entitled to their debt. you get paid the difference. You do run the risk of a bad auction day, no one shows-up, and the bank aquires the entire property for the debt, and you get nothing; however, that is fairly rare in Chile. there is an extremely healthy and competive auction market.
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Re: Buying an apartment - recommended down payment

Post by admin » Sun Mar 07, 2021 8:11 am

so, to put it another way, once you pay down your mortgage to a certain point, your risk profile goes down. Your chance of the music stopping, and you being caught without a chair goes down.

Obviously, it depends on a lot of factors, but I would say 50% equity of the 80% of the market value is about the sweet point. I say 80%, because that is about what the banks will use to issue your mortgage based on a property appraisal when they issue the mortgage. They do that to protect themselves, in the event of a forclosure auction.
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Re: Buying an apartment - recommended down payment

Post by tiagoabner » Sun Mar 07, 2021 8:43 am

Just to add to this discussion, there's an online mortgage comparison tool that you can access here: https://www.comparaonline.cl/credito-hipotecario

Per them, all quotes are for information purposes only, but they should help you get an idea of how the down payment will affect your monthly payments and your interest rate.
I'm NOT your lawyer, accountant or financial planner. All information at this post should be considered for your entertainment only. Consult a professional before making a decision regarding whatever topic was mentioned in this post.

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Re: Buying an apartment - recommended down payment

Post by gringalais » Sun Mar 07, 2021 4:39 pm

We put down 20% but didn't really ask about putting down less because we we had 20% saved. I agree with others that you should shop around as far as mortgage rates. My husband sort of figured that his regular bank would give him a good rate since he has significant investments with them as well as his checking account. They offered him a rate that was higher than the average at that time. In the end we bought from the builder and it turned out they had a deal with BancoEstado. We got a much better interest rate and no closing costs apart from one tax that was due at closing.

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