On a $400,000 home, 20% down ($80,000) means no PMI and a $2,129/month payment. 10% down ($40,000) means PMI (~$150/month) and a $2,395/month payment — $266 more monthly. But the $40,000 difference invested at 7% grows to $304,000 over 30 years. The right answer depends on your rate of return vs. your mortgage rate.
The "always put 20% down" rule made sense when mortgage rates were low and markets were flat. In 2026, with rates above 6.5% and investment returns variable, the decision is genuinely more complex.
10% vs. 20% Down on a $400,000 Home at 7%
- •20% down ($80,000): $320,000 loan → $2,129/month P&I, no PMI
- •10% down ($40,000): $360,000 loan → $2,395/month P&I + ~$150/month PMI = $2,545/month total
- •Monthly difference: ~$416/month
- •Annual difference: ~$4,992/year
- •Years until PMI cancels (at 10% down, 7%): ~9.5 years
- •Total extra cost of 10% down over 9.5 years: ~$47,424
The Opportunity Cost Argument
The 10% strategy keeps $40,000 working in investments. At a 7% annual return, that $40,000 grows to $76,000 in 10 years — generating $36,000 more than you started with. Meanwhile you paid ~$47,000 extra in mortgage costs. In this scenario, 20% down slightly wins financially.
At 10% investment return (historical S&P 500 average), the $40,000 grows to $103,748 in 10 years — gaining $63,748. Now the 10% down strategy wins by $16,000. The crossover point is roughly an 8.5% annual investment return.
When 20% Down is Clearly Better
- •Your mortgage rate is above 7.5% — the PMI + higher loan cost makes 20% clearly superior
- •You are risk-averse and value guaranteed savings over market returns
- •You are buying in a flat or declining market — equity protection matters more
- •Your investment account is already maxed out (401k, IRA) — no obvious home for the extra $40k
When 10% Down Makes Sense
- •You have high-confidence investment returns (e.g., employer 401k match you haven't maxed)
- •Home prices are rising fast — getting in the market earlier captures more appreciation
- •The 20% down would drain your emergency fund — never sacrifice liquidity for a down payment
- •Your mortgage rate is below 6.5% (less common now, but refinance scenarios apply)
Never use all your savings for a down payment. Lenders want to see 2–3 months of mortgage payments in reserves after closing. An emergency fund is more valuable than a slightly lower payment.