topic Re: Why is a lower down payment (ie higher loan to value LTV) less risk (and thus lower rate)? in Mortgage Loans

Why is a lower down payment (ie higher loan to value LTV) less risk (and thus lower rate)?

BR — Thu, 28 Dec 2023 18:51:16 GMT

As we can see in the image https://i.imgur.com/ZLn74hq.png, at scores 740, 760 and 780, putting a smaller down payment results in a lower risk premium (and thus a lower total rate) compared to a higher down payment. This seems counter intuitive since i would expect a lower down payment to be more risky. Any reason for this? Or am i reading the image wrong?

Re: Why is a lower down payment (ie higher loan to value LTV) less risk (and thus lower rate)?

Horseshoez — Thu, 28 Dec 2023 18:57:31 GMT

That chart has nothing to do with risk and/or a lower interest rate for a mortgage.

https://themortgagereports.com/6866/llpa-loan-level-pricing-adjustment-mortgage-rate

Re: Why is a lower down payment (ie higher loan to value LTV) less risk (and thus lower rate)?

ShanetheMortgageMan — Thu, 28 Dec 2023 19:52:12 GMT

@BR wrote:
As we can see in the image https://i.imgur.com/ZLn74hq.png, at scores 740, 760 and 780, putting a smaller down payment results in a lower risk premium (and thus a lower total rate) compared to a higher down payment. This seems counter intuitive since i would expect a lower down payment to be more risky. Any reason for this? Or am i reading the image wrong?

You are reading it correctly, but you'll see it impacts all borrowers, not just borrowers with 740+ credit scores. I suspect it's because there is greater PMI coverage at higher LTV's, lessening the risk to mortgage lenders since PMI companies pick up more of it.

Re: Why is a lower down payment (ie higher loan to value LTV) less risk (and thus lower rate)?

CreditCuriosity — Thu, 28 Dec 2023 20:07:11 GMT

I was initially thinking it was a result of this, but you are still in prime scores. Shane likely is correct?

https://forbes.com/sites/dereksaul/2023/05/02/bidens-mortgage-socialism-right-claims-new-policy-pushes-higher-fees-to-americans-with-better-credit-but-thats-not-really-true/?sh=2997f8125077

Re: Why is a lower down payment (ie higher loan to value LTV) less risk (and thus lower rate)?

BR — Fri, 29 Dec 2023 03:21:43 GMT

Makes sense. anything higher than 80 would have PMI so the lower percentage is most likely made up via PMI.