MortgageCast

A larger down payment can help you secure a lower mortgage rate. This is because you are borrowing less money relative to the home’s value (a lower Loan-to-Value ratio), which the lender sees as less risky. Putting down less than 20% often requires you to pay for Private Mortgage Insurance (PMI), which increases your overall monthly housing cost but does not directly lower your interest rate.

Your credit score is a primary factor in determining your mortgage rate. Generally:
Higher Credit Score: Indicates you are a lower-risk borrower, which qualifies you for a lower interest rate.
Lower Credit Score: Suggests a higher risk to the lender, which results in a higher interest rate to offset that risk. Even a small difference in your score can significantly impact the rate you’re offered.

Discount points are an upfront fee you pay to the lender at closing to reduce your interest rate. Each point typically costs 1% of your loan amount and lowers your rate by a certain percentage (e.g., 0.25%). This is a form of “buying down” your rate and can be a good strategy if you plan to stay in the home long enough for the monthly savings to exceed the upfront cost.

PMI is insurance that protects the lender if you default on your loan.
It is typically required if your down payment is less than 20% of the home’s purchase price.
The cost varies but usually falls between 0.5% and 1.5% of the loan amount annually, added to your monthly payment.
You can request to cancel PMI once your equity reaches 20%.