If you make a bigger down payment, you’ll have to borrow less and you’ll also pay less interest.
For instance, if you borrow a loan of $100,000 with a 5% interest rate, you’ll pay an interest of $5,000 in the first year alone.
However, if you put down $20,000 and borrow only $80,000, then your first-year interest will be $4,000 resulting in a saving of $1,000.
Over the long term, this difference is even more dramatic. Let us take the same example of borrowing $100,000 at 5% interest, it would cost you $93,256 in interest over a 30-year period.
And if you borrow just $80,000 then your total interest cost will be $74,605 saving you nearly $20,000 in long run.
Additionally, a lender may offer you a lower interest rate on your loan since you put more money down because you now represent less of a risk.