Low Down Payment

Robert J. Bruss’ comments concerning the advantages of making minimum down payment when buying a home (“The Benefits of a Small Down Payment,” Nov. 18) are not generally correct.

If you have $20,000 and decide to put only $10,000 down on a house, you will be poorer unless the remaining $10,000 can be invested at a rate equal to or greater than your mortgage rate. (Both must be compared on an after-tax basis.)

The concept on which this example is based is that of multiple rates of return on investment, discussed usually within the first three chapters of most of today’s university-level principles of finance textbooks.

On the positive side, Bruss’ observation is correct that a minimum home down payment does reduce the buyer’s risk. However, the buyer’s reduced risk is the banker’s increased risk. Increased risk usually demands an increased return. If banks are doing business according to sound financial principles, the higher risk should demand a higher mortgage rate (or more points).

Unfortunately, observation would suggest that most banks may not require additional premium for additional risk--to the benefit of a few, and to the detriment of many!

DON A. MANN

Carlsbad