Should I Put 10% or 20% Down?
20% removes mortgage insurance. 10% keeps roughly two percent of the purchase price invested and liquid. Which wins depends on one number.
Key takeaways
- 10% down on a conventional loan means PMI, but PMI is temporary: it can be cancelled at 80% loan-to-value and terminates automatically at 78%.
- The extra 10% is not free. It is cash that stops being liquid and stops earning a return.
- The honest comparison is a breakeven return: the after-tax annual return at which both choices end with the same net worth.
- If your expected after-tax return is comfortably above the breakeven and your reserves are thin, 10% is usually the stronger position.
- If you would not invest the difference, 20% down almost always wins.
Short answer: put 20% down if the extra cash would otherwise sit in a checking account, and consider 10% down if the difference will be invested and you need the liquidity. The deciding number is the after-tax investment return at which the two paths produce the same net worth — your breakeven return.
What actually changes between 10% and 20%
On a $500,000 purchase, the difference is $50,000 of cash. That $50,000 buys three things at closing: a smaller loan, no private mortgage insurance, and in most cases slightly better loan pricing. It also removes $50,000 from your invested and accessible assets on day one.
| 10% down | 20% down | |
|---|---|---|
| Cash at closing (excl. costs) | $50,000 | $100,000 |
| Loan amount | $450,000 | $400,000 |
| Private mortgage insurance | Yes, until 80% LTV | None |
| Cash still invested | $50,000 more | — |
| Monthly payment | Higher | Lower |
PMI is a temporary cost, not a permanent one
This is where most comparisons go wrong. On a conventional loan, private mortgage insurance is not a life-of-loan expense. Under the Homeowners Protection Act, you can request cancellation once the balance reaches 80% of the original value, and the servicer must terminate it automatically at 78% if you are current on payments. On a 30-year loan starting at 90% LTV, amortization alone reaches 80% in roughly nine to ten years — and much sooner if the property appreciates and your servicer accepts a new valuation.
The breakeven return
Putting the extra $50,000 into the house earns a guaranteed return equal to your mortgage rate plus the mortgage insurance you avoid, adjusted for any tax benefit. Keeping it invested earns an uncertain after-tax return. The breakeven is where those two are equal.
Two details matter and are routinely ignored. First, both paths must spend the same amount each month — if the 10%-down payment is higher, that extra outlay has to come out of the invested balance, not out of thin air. Second, the return has to be after tax. A 7% gross return in a taxable brokerage account is not 7% of spendable growth.
Liquidity is the tiebreaker
A breakeven analysis assumes you survive the holding period without selling anything at a bad moment. Cash locked in home equity is not available for a job loss, a roof, or a rate-lock extension. Before optimizing net worth, set a reserve floor — commonly three to six months of total housing cost plus living expenses — and reject any scenario that drops below it.
- Emergency reserve intact after closing
- Enough left for immediate repairs, furnishing and moving
- No need to sell investments in a down market to make payments
When 20% down is clearly right
- The difference would not actually be invested.
- Your PMI quote is unusually expensive because of credit score or loan type.
- You are near a loan-limit or pricing threshold that a larger down payment clears.
- You value a lower fixed payment more than expected extra return.
When 10% down is defensible
- You would otherwise close with a thin emergency fund.
- Your expected after-tax return is comfortably above the breakeven.
- You expect to reach 80% LTV quickly through amortization or appreciation.
- You have another near-term use for the cash with a known return, such as high-interest debt.
Worked example: $500,000 purchase, 30-year fixed
- Purchase price
- $500,000
- Loan amount
- $450,000
- Rate
- 6.6%
- Down payment
- 10% ($50,000) versus 20% ($100,000)
- Holding period
- 10 years
- Tax assumptions
- Standard deduction assumed; no itemized benefit modelled
- Investment assumptions
- Difference invested monthly, after-tax return varied
- Extra cash kept invested at closing$50,000
- PMI on the 10% pathUntil 80% LTV, roughly year 9
- Monthly payment difference10% down is higher
- Approximate breakeven after-tax returnRun it in the optimizer
Figures illustrate the structure of the comparison. Your PMI factor, rate and tax position change the breakeven, so run your own numbers.
Frequently asked questions
- Does 10% down always mean PMI?
- On a conventional loan, yes, in some form — either monthly PMI, a single upfront premium, or lender-paid PMI built into a higher rate. All three are ways of paying for the same coverage.
- Can I put 10% down now and pay to 20% later?
- Yes. Extra principal moves you toward the 80% cancellation threshold faster. Ask your servicer what documentation and seasoning they require before you make a lump-sum payment.
- Does a bigger down payment get me a lower rate?
- Usually a slightly better one. Loan-level pricing improves at certain loan-to-value thresholds, so ask your lender to quote both scenarios rather than assuming.
Sources
- Consumer Financial Protection Bureau: When can I remove private mortgage insurance (PMI) from my loan? — accessed 2026-07-28
- U.S. Department of Housing and Urban Development: Homeowners Protection Act of 1998 — accessed 2026-07-28. Statutory basis for automatic PMI termination at 78% loan-to-value.
- Freddie Mac: Primary Mortgage Market Survey — accessed 2026-07-28. Benchmark 30-year and 15-year fixed rates used in the illustration.
Educational content only. This is not a loan offer, and your actual terms depend on your lender, credit profile and property.
Investment returns are uncertain and are modelled here as assumptions, not predictions. This is not investment advice.
Keep reading
How to Remove PMI
Private mortgage insurance is temporary by law. Here are the exact thresholds, what your servicer can require, and how to get there sooner.
Should I Pay Off My Mortgage or Invest?
Extra principal earns exactly your mortgage rate, guaranteed and after tax for most borrowers. Whether investing beats it depends on your expected after-tax return, your liquidity and your holding period.
How Much Should I Put Down on a House? 3%, 5%, 10% or 20% Compared
The best down payment is not automatically 20%. Compare how different down payments affect monthly payments, mortgage insurance, cash reserves, interest and long-term financial flexibility.