How Your Home Loan Down Payment Impacts Your Interest Rate

You’re nearly ready to apply for a home loan – you have a stable income and you’ve spent the last several months doing what you can to make yourself a more attractive mortgage candidate. As far as your credit score, debt situation and finances go, everything is looking good.

But what about your down payment? Do you have much money saved up?

The amount you’re able to put down on a Utah home affects more than your eligibility for a home loan – it’s also a factor in determining your interest rate. Here’s what you need to know.

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Lower Interest Rates are for Low-Risk Borrowers

When assigning interest rates, mortgage lenders typically base the decision on their level of risk. Generally speaking, applicants with higher credit scores tend to get the best rates – to lenders, that’s a strong indicator that a borrower poses a lower risk of defaulting on a home loan.

However, a borrower who makes a more sizeable down payment is also seen as less risky to mortgage lenders. By putting more money toward the purchase of a Utah home, you’ll reduce the lender’s stake in the property. In exchange for dialing down their risk by making a down payment of 20 percent or more, you might be offered a lower interest rate.

Why Getting a Low Interest Rate Matters

How much of a difference would getting a lower interest rate really make? Quite a large one, actually. Depending on the purchase price of the property and the total amount of the mortgage, saving even a fraction of a percent can mean saving thousands of dollars (or even tens of thousands) over the life of your home loan.

As an example, let’s say you’d like to take out a 30-year fixed-rate mortgage. With a 3.99 percent rate, your monthly loan payment would be $1,184. If the rate drops to 2.99 percent, your payment amount would drop to $1,073. You’d save $111 each month, and over the course of the year, your savings would total $1,332. Other factors may affect how much you save, of course, but you get the idea.

Get Advice from a Home Loan Expert

While the down payment you make on a Utah home may play a major role in determining your mortgage rate, a number of other considerations – including your credit score, the amount you want to borrow, the type of mortgage you choose and your loan term – go into the decision.

As every homebuyer has a unique situation, speaking with an experienced Utah mortgage lender is a smart strategy. For answers to your questions about mortgages, down payments and interest rates along with assistance in shopping for a home loan that meets your needs, contact Intercap Lending today.