A larger down payment lowers your loan-to-value ratio, which lowers your interest rate. The question is whether to spend cash on points or on a larger down payment.
The answer depends on your LTV level. At certain thresholds, additional down payment triggers rate improvements or PMI removal that may be more valuable than buying points. Patrick Kevin Fagan helps San Antonio buyers compare these strategies.
LTV Impact on Rate
As your down payment increases, your LTV decreases. Lower LTV means lower risk for the lender, which translates to a lower base rate. The rate improvement from reducing LTV is not linear. Dropping from 95% LTV to 80% LTV has a much bigger impact than dropping from 60% to 55%. Patrick Kevin Fagan explains LTV pricing tiers for clients in San Antonio.
Scenarios
Compare two strategies on a $300,000 home. Option A: 5% down ($15,000) plus 2 points ($5,700). Option B: 10% down ($30,000) plus 0 points. The rate and payment difference depends on current pricing. In many cases, the larger down payment provides a better risk-adjusted return than buying points. Patrick Kevin Fagan models both scenarios for clients throughout greater San Antonio.
When Each Wins
Points win when you are already putting 20% down and want further rate reduction. Larger down payment wins when it moves you into a lower LTV tier or eliminates PMI. The best approach depends on your cash position, timeline, and rate environment. Call 210-317-6514 to discuss which strategy fits your situation.
