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This guide is general educational information, not investment advice.
The short answer
A larger down payment shrinks your loan, cuts your monthly payment, and can eliminate PMI — but every dollar you put down is a dollar you can't access without selling or borrowing. In 2026, with high-yield savings paying around 4%, the tradeoff is tighter than it looks: keeping cash costs you the mortgage-rate-vs-savings-rate spread each year, but buys liquidity and safety. There's no universal right answer — it depends on your emergency fund, job stability, and how close you are to 20%.
The math: 10% vs. 20% down on $500,000
At a 6.75% 30-year rate:
| 10% down ($50k) | 20% down ($100k) | |
|---|---|---|
| Loan amount | $450,000 | $400,000 |
| Monthly P&I | ~$2,916 | ~$2,592 |
| PMI | ~$180/mo until 20% equity | $0 |
| Total monthly | ~$3,096 | ~$2,592 |
| Cash kept in reserve | $50,000 | $0 |
The bigger down payment saves about $504/month. But the $50,000 you kept earns ~4% in high-yield savings — about $167/month — narrowing the net cost of keeping cash to roughly $337/month.
Over five years, the 20%-down buyer saves about $30,000 in payments and PMI. The 10%-down buyer keeps $50,000 liquid and earns ~$10,800 in savings interest. The down-payment buyer comes out ahead on pure dollars — if nothing goes wrong.
What the spreadsheet misses: liquidity
Money in your home's equity is illiquid. Getting it back requires selling, refinancing, or opening a HELOC — all slow, costly, or impossible in a downturn. Money in savings is available tomorrow.
Liquidity matters most when:
- Your emergency fund is thin. If the down payment wipes out your cash reserves, keep the cash. A furnace replacement or job loss doesn't wait for a refinance.
- Your income is variable. Freelancers, commission earners, and business owners need bigger buffers.
- You're buying an older home. Repair surprises are a matter of when, not if.
A common rule: after closing, keep 3–6 months of total expenses liquid plus a home-repair buffer. If 20% down breaks that rule, put less down.
The PMI breakpoint
PMI is the strongest argument for stretching to 20%. At ~$150–250/month on a typical loan, PMI is pure cost — it protects the lender, not you, and builds zero equity. Crossing the 20% threshold eliminates it entirely.
But PMI isn't permanent: on conventional loans you can request cancellation at 20% equity and it drops automatically at 22% (per the Homeowners Protection Act). If you're at 15% down, the PMI phase may last only a few years — run the numbers rather than assuming it's forever. See PMI vs. higher mortgage rate for the full comparison.
The savings-rate angle
With savings at ~4% and mortgages at ~6.75%, every dollar shifted from savings to down payment earns a 2.75% spread — guaranteed, since it reduces 6.75% debt instead of earning 4%. That's a solid risk-free return. But it's only worth it with money beyond your emergency fund. The spread doesn't compensate for being cash-poor in a crisis.
A practical framework
- Set your floor first. Emergency fund (3–6 months) + moving costs + repair buffer. This cash is non-negotiable.
- Put the rest toward the down payment, up to 20% to kill PMI.
- Beyond 20%, weigh the spread. Extra down payment earns ~2.75% vs. savings. Worthwhile but not urgent — investing or keeping flexibility may win.
- Never go below your floor to hit 20%. PMI for a few years beats a cash crisis.
Common mistakes
- Putting every dollar down. Then borrowing on credit cards at 22% for the first repair.
- Ignoring PMI's temporary nature. A few years of PMI can be cheaper than waiting years to save 20% while prices rise.
- Comparing mortgage rate to savings rate pre-tax. Savings interest is taxable; the mortgage interest you avoid may be deductible if you itemize.
- Forgetting closing costs. You'll need 2–5% of the price in cash beyond the down payment.
Methodology and limitations
Figures are illustrative at 6.75% on a $500,000 purchase; PMI estimates reflect typical conventional ranges and vary by credit and insurer. Savings rates reflect 2026 high-yield ranges and change frequently. Tax treatment depends on whether you itemize. As of October 2026.
Reviewed by the LoanMate.ai editorial team.
Primary sources
- Consumer Financial Protection Bureau (CFPB): down payment and PMI guidance; Homeowners Protection Act explanations
- Federal Reserve: mortgage and deposit rate data
- FDIC: savings rate benchmarks
Next action
Model your down payment scenarios →, compare PMI vs. a higher rate, check current mortgage rates, and read CD vs. high-yield savings for where to park the cash you keep.