read the scenario.\njay and laura have been dreaming of purchasing their first home together. theyve been…
read the scenario.\njay and laura have been dreaming of purchasing their first home together. theyve been diligently saving and have managed to accumulate a significant sum for a down payment.\nhow does their decision to make a larger down payment benefit their financial situation as they purchase a home?\nit increases the interest rate on the loan.\nit decreases their credit score.\nit increases the homes value.\nit decreases their monthly payment.
Answer
Brief Explanations:
When a larger down - payment is made:
- The loan amount (the amount borrowed) is smaller. Using the formula for the monthly payment of a loan (M = P\frac{r(1 + r)^n}{(1 + r)^n-1}) (where (M) is the monthly payment, (P) is the principal amount of the loan, (r) is the monthly interest rate, and (n) is the total number of payments), a smaller (P) (principal) will result in a smaller (M) (monthly payment) when other factors ((r) and (n)) are constant.
- A larger down - payment usually does not increase the interest rate. Lenders may offer better interest rates for larger down - payments in some cases.
- A down - payment has no direct impact on the credit score. Credit score is mainly affected by payment history, credit utilization, length of credit history etc.
- The down - payment has no impact on the home's value. The home's value is determined by market conditions, location, size, condition etc.
Answer:
It decreases their monthly payment.