How do larger down payments generally affect mortgage terms for borrowers?

Larger down payments generally lead to lower interest rates for borrowers due to several factors that lenders consider. When a borrower makes a substantial down payment, they are perceived to have a lower risk profile. This is because a larger down payment means the borrower has more equity in the property from the start, which reduces the lender's exposure in case of default.

Lenders are incentivized to offer better interest rates to borrowers who can provide larger down payments since these borrowers are often seen as more financially stable and responsible. A resulting lower interest rate can have a significant impact over the life of the mortgage, leading to substantial savings on the total cost of the loan.

The other options present scenarios that do not typically arise from making larger down payments. For example, while larger down payments can help in reducing monthly payments by lowering the loan amount, they do not automatically result in changes to the mortgage term like shortening it or eliminating mortgage insurance altogether. In fact, while making a larger down payment can help reduce insurance requirements, it may not fully eliminate them in every case. Thus, the connection between larger down payments and lower interest rates is the strongest and most direct impact on mortgage terms.