Loans.org Details the Importance of Large Home Loan Down Payments

LOS ANGELES, April 26, 2012 /PRNewswire/ -- As real estate prices and interest rates continue to hover at rock-bottom levels, more financially able borrowers are thinking about purchasing homes. Due to this trend, Loans.org has released an FAQ detailing the importance of making larger home loan down payments.

Generally speaking, the larger the down payment, the more money a borrower will save over the lifetime of a home loan. Large down payments affect a mortgage's monthly payment, interest rate, and requirement for private mortgage insurance (PMI).

A down payment is the lump sum of money that is put directly toward the principal of a borrower's home financing. As a result, more money down reduces a borrower's monthly payment, since the principal of the home loan they're repaying is lower.

Likewise, lenders are more prone to grant better interest rates on mortgage financing that is lower risk, and the larger the down payment, the lower the risk for lenders.

Finally, PMI is generally required on home loans that are not secured by a down payment of at least 20 percent of the property's total value.

Source: http://www.insurance.wa.gov/consumers/other/private-mortgage-insurance.shtml

PMI can be very expensive, with an annual cost of between 0.5 and 1 percent of a property's total value. On a home appraised at $200,000, PMI will cost between $1,000 and $2,000 every single year.

It is largely due to this PMI cost that most experts advise homeowners to put at least 20 percent down. Not only does a down payment of that amount produce immediate equity in a home, but it also saves homeowners from an expensive penalty that comes in the form of a recurring annual PMI bill.

Borrowers contemplating the purchase of a property should think hard about the size of their down payment. The larger the down payment, the more money will be saved in the long term.

For more information on down payments, you can go to http://loans.org/mortgage to find a frequently updated library of financing information. Additionally, prospective loan applicants can access a free-to-use quote-comparison generator that is designed to help consumers receive the lowest interest rates possible.

To access the full FAQ on down payment sizes, readers can follow the "Questions" link at the top of any page on the site.

SOURCE Loans.org, LLC