20% down vs. a smaller down payment
Scenario. A $400,000 home at 6.76%. Option A: 10% down ($40,000), $360,000 loan, PMI at 0.6%/yr until 20% equity. Option B: 20% down ($80,000), $320,000 loan, no PMI.
| 10% down, pay PMI | 20% down, no PMI | |
|---|---|---|
| Cash at closing (down payment) | $40,000 | $80,000 |
| Loan amount | $360,000 | $320,000 |
| P&I payment | $2,337 | $2,078 |
| PMI (until ~20% equity) | $180/mo | $0 |
| Total monthly housing (P&I + PMI) | $2,517 | $2,078 |
| Cash kept for reserves / investing | $40,000 | $0 |
Run “10% down, pay PMI” → · Run “20% down, no PMI” →
What 20% down buys you
Twenty percent down removes private mortgage insurance on a conventional loan, shrinks the loan itself, and sometimes earns a slightly better rate. On a $400,000 home the difference is often $250–$400 a month between the two options above. Over the years until PMI drops, that adds up.
When a smaller down payment is fine
- Reaching 20% would leave you with no emergency fund. A few years of PMI is cheaper than a high-interest loan when the water heater fails.
- You can invest the difference at an expected return above the PMI cost — though only if you will actually do it.
- Home prices in your area are rising fast enough that waiting to save the full 20% costs more than PMI would.
- PMI is temporary. It cancels automatically at 78% of original value and can be requested at 80%, or sooner with extra payments or appreciation.
Frequently asked questions
Is it worth putting 20% down?
Yes, if it does not exhaust your savings. It removes PMI, cuts the loan, and lowers the payment. If reaching 20% would leave you without an emergency fund, a smaller down payment is the safer choice.
How long do I pay PMI?
Until you reach about 20% equity based on the original value, at which point you can request cancellation; it terminates automatically at 78%. Extra principal payments or a rising home value can get you there faster, or a refinance can remove it.
Does 20% down get me a better interest rate?
Often a slightly better one, because a lower loan-to-value is less risk to the lender. The bigger savings is avoiding PMI entirely.
Related calculators
Terms: Private mortgage insurance (PMI) , Loan-to-value ratio (LTV) , Down payment , Home equity