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Conclusion: What Affects Your Mortgage Payment

Your monthly mortgage payment depends on your credit score, the size of your down payment, and whether you pay discount points. A down payment of less than 20% forces you to buy mortgage insurance, get a piggyback loan, or pay a higher rate.

The credit score is a reflection of your credit history; that is, whether you pay bills on time, how much debt you have, how much you earn, and the types of debt you have. Before applying for a mortgage, get copies of your credit reports so you can have time to correct any errors.

Often, a down payment under 20% means that you will pay a higher interest rate, and that you will have to buy private mortgage insurance or get a piggyback loan. People with little or no down payment money can get mortgages, either through FHA and VA programs, or getting contributions from down payment assistance programs, or getting zero-down loans at higher interest rates.

You can reduce your interest rate by paying discount points. A point costs 1% of the loan amount and generally reduces your rate by 0.25%. Paying discount points makes sense if you have the mortgage long enough for the lower monthly payments to make up for the out-of-pocket expense of paying for the points. This breakeven period usually takes a few years, but after that, you keep saving on interest. In the end, the savings on interest can be substantial.

Ultimately, the rate that you pay depends very much on what is happening in the secondary market where your lender gets its money.