5%, 10%, or 20% Down? Comparing Mortgage Down Payments With Real Payments

Side-by-Side Comparison

With 5% down ($20,000), the loan is $380,000. The principal-and-interest payment is $2,401.86, and PMI adds about $253 a month, for $2,655 in total. With 10% down ($40,000), the loan is $360,000, P&I is $2,275.44, PMI is about $240, and the total is $2,515. With 20% down ($80,000), the loan is $320,000, P&I is $2,022.62, and there is no PMI.

The difference between 5% and 20% down is $632 a month, or about $7,600 a year, in exchange for an extra $60,000 of cash at closing.

The Cost of Mortgage Insurance

PMI protects the lender, not you. Rates depend on credit score, down payment, and loan type, and commonly run from about 0.3% to 1.5% of the loan per year. You can usually request removal once your balance reaches 80% of the home's original value, and it ends automatically at 78% on conventional loans. With 5% down, reaching 80% LTV by paying principal alone takes roughly 10 years at 6.5%, though appreciation or extra payments can shorten it.

FHA loans have their own mortgage insurance rules, often with an upfront premium plus an annual premium that can last for the life of the loan with a low down payment.

What Else Competes for Your Cash

Each extra $60,000 put into the down payment is $60,000 not available for other uses. Consider an emergency fund of several months of expenses, moving and furnishing costs, repairs, and closing costs of 2% to 5% of the price, which are separate from the down payment. A buyer who drains savings to hit 20% down and then faces a $10,000 roof repair may be in a worse position than one who put 10% down and kept a cushion.

Compare the cost of PMI to the opportunity cost. If PMI costs $253 a month and the extra cash would earn 4% in a savings account, the $60,000 would yield $200 a month, about the same cost as PMI. In that case, the choice is close, and liquidity favors the smaller down payment.

Interest Rate and Approval Effects

Larger down payments can earn a better rate, because lenders see lower risk. The effect is modest above 20%. Smaller down payments may also reduce your approval odds if debt-to-income ratios are tight, since the higher payment counts against you. Some programs offer low down payments, such as 3% conventional, 3.5% FHA, and zero-down VA and USDA loans for eligible borrowers.

How to Decide

Choose the largest down payment that still leaves you with a comfortable emergency fund and a margin for repairs. If you are close to 20%, a modest extra saving period or a gift from family may be worth it to avoid PMI. If home prices are rising quickly in your area, waiting to save more may cost you more than PMI would.