An Odd Wrinkle In Mortgage Rates

Conventional wisdom suggests that the bigger the down payment you make on a mortgage, the better the mortgage rate you'll get. After all, a bigger down payment means more equity in the home upfront, which gives the bank more of a cushion between the value of their collateral and the amount of your loan. However, an interesting anomaly has made some interest rates higher for home buyers with larger down payments.
The reason is a function of Fannie Mae and Freddie Mac underwriting guidelines. The logic behind this particular aspect of the guidelines is fuzzy even by bureaucratic standards, but that's not the point. For now, this rule creates a scenario where you could pay a higher interest rate with a 20% down payment than with a 5% down payment.

The takeaway here is don't assume anything about mortgage rates. You not only have to compare different loan options but when doing so, you should be very specific about the mortgage terms you have in mind. You also may want to run a couple different scenarios by your lender - you might be surprised at which results in the best terms.