Beyond 20%: When increasing your mortgage down payment makes sense (and when it doesn't)
Written for you by:
Expert
Expert
Raisin is a free platform for high-yield savings accounts and CDs from 100+ banks and credit unions. We don't provide loans, investments, or tax services. Information on this page is for educational purposes only.
Should home buyers put down more than the standard 20% down payment on a home?
Increasing a mortgage down payment beyond 20% (to 25%, 30%, or more) can make strategic sense when mortgage interest rates are elevated (above 6.50% to 7.00%), because every dollar added to the down payment provides a tax-free return equivalent to the mortgage interest rate avoided. However, many buyers choose not to put down more than 20% if doing so depletes emergency cash reserves, requires liquidating retirement assets, or if high-yield deposit accounts offer competitive net returns after accounting for mortgage tax considerations.
Key takeaways
Putting 20% down eliminates private mortgage insurance (PMI) and helps access competitive borrowing terms, but it is not a strict cap.
When 30-year fixed mortgage rates sit around 6.50% to 7.00%, larger down payments reduce overall interest expenses substantially.
Money tied up in home equity is illiquid. Financial planners generally suggest maintaining three to six months of emergency reserves in liquid high-yield accounts before allocating extra cash to home equity.
The 20% down payment rule: Benchmark vs. reality
For decades, real estate guidelines have pointed to 20% as the target down payment. Reaching 20% equity removes private mortgage insurance (PMI), lowers your loan-to-value (LTV) ratio, and gives lenders confidence in your financial stability.
However, in today's interest rate environment, buyers holding cash above the 20% threshold face a strategic decision: Is it better to put down 25% to 35% to shrink the mortgage loan balance, or keep that extra cash liquid in fixed-yield savings products?
Down payment considerations
Putting down more than 20% may make sense when:
Mortgage rates are 6.50% or higher.
Lower monthly fixed payments are a priority.
An emergency fund remains fully intact.
Debt reduction is a primary goal.
Sticking to 20% down may make sense when:
Comparing the math: 20% vs. 30% down payment
To see the real-world impact, consider a home purchase at $500,000 with a 30-year fixed mortgage at 6.85% interest:
Scenario | Down Payment Amount | Loan Amount | Principal & Interest Payment | Total Interest Paid Over 30 Years |
Option A: 20% Down | $100,000 (20%) | $400,000 | $2,621 / month | $543,623 |
Option B: 30% Down | $150,000 (30%) | $350,000 | $2,293 / month | $475,670 |
Net Difference | +$50,000 cash upfront | -$50,000 loan | -$328 / month saved | -$67,953 interest saved |
Interest savings breakdown
By contributing an additional $50,000 upfront (moving from 20% to 30% down), the buyer lowers the monthly payment by $328 and avoids $67,953 in total interest over the life of the loan. That extra $50,000 down payment yields a predictable, tax-free return equivalent of 6.85% — the exact interest rate avoided on the principal.
When putting down more than 20% makes sense
1. Elevated mortgage interest rates
When mortgage rates were near 3.00%, putting down more than 20% was less common because cash could earn higher returns elsewhere. At 6.50% to 7.00%+ borrowing rates, paying down principal provides a fixed return rate that few taxable fixed-income investments match on an after-tax basis.
2. Lowering monthly fixed obligations
A larger down payment lowers the required monthly mortgage payment. For those nearing retirement, transitioning to a single-income household, or entering a variable-income career, reducing monthly fixed overhead offers financial flexibility.
3. Crossing tiered lender LTV thresholds
Lenders often offer lower interest rate pricing tiers when loan-to-value (LTV) ratios cross specific thresholds — such as 75% LTV (25% down) or 70% LTV (30% down). Lowering the LTV tier can reduce the interest rate across the entire loan balance.
When keeping down payment cash liquid is preferred
1. Maintaining the emergency cushion
Financial planners emphasize keeping cash reserves intact when buying a home. Homeownership involves unexpected maintenance expenses — roof repairs, HVAC servicing, or property tax adjustments. Keeping three to six months of essential living expenses in a high-yield savings account maintains liquidity.
2. Compounding flexibility via fixed CDs
When short-term CD APYs or no-penalty CD rates are competitive, or if a buyer anticipates refinancing if mortgage rates decline, holding excess cash in a fixed CD retains liquidity for future debt paydowns or other financial goals.
3. Immediate post-closing renovation needs
If a property requires immediate capital improvements, maintaining cash in an accessible liquid account avoids taking on higher-interest personal loans or home equity lines of credit (HELOCs) later.
Structuring cash around a home purchase
- Step 1: Establishing a 20% baseline: Reaching 20% equity eliminates PMI costs immediately.
Step 2: Preserving emergency reserves: Setting aside 3 to 6 months of living expenses in a high-yield savings account maintains essential liquidity.
Step 3: Evaluating additional cash:
When mortgage interest rates exceed net yields on cash deposits, applying additional cash toward a down payment reduces overall interest costs.
When flexibility or near-term liquidity is needed, maintaining excess cash in a no-penalty CD or CD ladder provides accessibility.
Optimize your home savings strategy with Raisin
Whether accumulating an initial 20% down payment or holding excess reserves, making your money work harder is essential. Through a single login at Raisin, you can compare and fund high-yield savings accounts, no-penalty CDs, and short-term CDs from top FDIC- and NCUA-insured partner banks and credit unions nationwide using SOC 2-certified technology.
Frequently asked questions
Can I make a principal payment later instead of putting it down upfront?
Yes. Choosing a 20% down payment to maintain liquidity allows for lump-sum principal payments later. Many mortgage servicers permit loan "recasting" for a small fee, recalculating monthly payments based on the lower remaining balance without refinancing.
Does a larger down payment lower closing costs?
Certain closing costs calculated as a percentage of the loan amount (such as loan origination fees) decrease slightly with a smaller loan size. Flat fees, such as title and appraisal costs, remain unchanged.
Add Raisin to your Google preferred sources.
Enjoying our guides? Add Raisin as a preferred publication so our latest financial education guides appear more frequently in your Google Search results and news feed.
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
Sources:
- Freddie Mac Primary Mortgage Market Survey (September 2026): https://www.freddiemac.com/pmms
- FDIC National Rates and Rate Caps: https://www.fdic.gov/national-rates-and-rate-caps
© 2026 Raisin SE. All rights reserved.
The Raisin name and logo are trademarks of Raisin SE. All other trademarks, logos, marks, and brand names are the property of their respective owners.
*APY means Annual Percentage Yield. APY is accurate as of September 25, 2026. Interest rate and APY may change after initial deposit depending on the terms of the specific product selected. Minimum opening deposit is $1.00.
Raisin is not an FDIC-insured bank, and FDIC deposit insurance only covers the failure of an insured bank.
Raisin is not an NCUA-insured credit union. NCUA deposit insurance only covers the failure of an insured credit union.
Raisin is not a bank or credit union and does not hold any customer funds. When you make a deposit, your funds are held by a custodial bank in an account for your benefit at the FDIC-insured bank or NCUA-insured credit union you select, rather than becoming a direct customer of the bank or credit union. Deposit insurance covers the failure of an insured bank or credit union. Certain conditions must be satisfied for pass through deposit insurance coverage to apply.
Raisin does not hold any customer funds. Customer funds are held in various custodial deposit accounts. Each customer authorizes the Custodial Bank to hold the customer’s funds in such accounts, in a custodial capacity, in order to effectuate the customer’s deposits to and withdrawals from the various bank and credit union products that the customer requests through Raisin.com. The Custodial Bank does not establish the terms of the bank or credit union products and provides no advice to customers about bank or credit union products offered by the applicable bank or credit union through Raisin.com. Each customer also authorizes the Service Bank to move funds among the various banks and credit unions at the customer’s request. First International Bank & Trust (FIBT), Member FDIC, is the Service Bank. Bell Bank and Starion Bank, each Member FDIC, are the Custodial Banks.
†Based on $250,000 in FDIC or NCUA insurance coverage per insurable category of ownership at each partner bank or credit union on the Raisin platform (each a "Product Bank"), when aggregated with all other deposits held by you at such Product Bank and in the same insurable category. Deposits made through Raisin will be eligible to receive deposit insurance from the FDIC or the NCUA (each a "Deposit Insurer") in accordance with and up to the maximum amount permitted by law at each Product Bank. Raisin is not a bank or credit union and does not hold any customer funds. Funds are held at FDIC-insured banks and NCUA-insured credit unions. Deposit insurance covers the failure of an insured bank or credit union. Certain conditions must be satisfied for pass through deposit insurance coverage to apply. Customers may choose to deposit funds with identically registered accounts at different Product Banks on the Raisin platform to be eligible for Deposit Insurer coverage up to $10 million for individual accounts and $20 million for joint accounts when at least 40 Product Banks are utilized. Please be aware, however, that any deposits you have at a Product Bank, whether through the Raisin platform or outside the Raisin platform, that you may hold in the same capacity (such as in an individual capacity or joint capacity) count toward the applicable Deposit Insurer's deposit insurance maximum amount, and any such amounts that you hold in the same capacity at a Product Bank that exceed the maximum insurance coverage by the applicable Deposit Insurer will not be insured. For more information on FDIC deposit insurance, please see here. For more information on the NCUA share insurance fund, please see here. You are solely responsible for monitoring the amount of funds you have on deposit at each a Product Bank, whether through the Raisin platform or outside the Raisin platform, to confirm that the deposits you hold in the same capacity at each Product Bank do not exceed the maximum deposit insurance coverage provided by the applicable Deposit Insurer.