Home › Borrow › 20% down vs PMI

20% down, or pay PMI and keep the cash?

As of Oct. 16, 2026

Short answer: On money alone, 20% down usually wins: you skip PMI and borrow less at your mortgage rate. Keeping the cash only comes out ahead if it earns more than your mortgage rate plus what PMI costs on the extra you borrowed (in our example, about 12.7% a year, versus 4.2% from today's best savings account we track). The real reason to put less down is safety: don't empty your savings to reach 20%. If 20% down would leave you without an emergency fund, putting less down and paying PMI until you reach 80% is a reasonable trade, because PMI on a conventional loan comes off. Run your numbers.

Sources: CFPB: PMI · CFPB: rate & LTV · 12 U.S.C. 4902

Best move: keep your emergency fund, then put down what's left

Put 20% down only if you'll still have an emergency fund afterward. If not, put less down, keep the cushion, and plan to drop PMI at 80%. Ask the lender for Loan Estimates at both down payments, because a bigger down payment can also get a lower rate (CFPB).

The math:

  • Example: $400,000 home, 30 years at 7.4% (Freddie Mac average, October 15, 2026), PMI $150/mo (an illustration; use your quote), kept cash earning 4.2% (EverBank, read 2026-10-12).
  • 10% down ($40,000) vs 20% down ($80,000): principal + interest $2,493 vs $2,216/mo; PMI paid over 7 years $12,600 (84 months).
  • After 7 years (savings minus what you still owe), 20% down is about $24,821 ahead. With 5% down, about $29,943.
  • Break-even: the kept $40,000 would have to earn about 12.74% a year for 10% down to tie.

Sources: CFPB: PMI · CFPB: rate & LTV · 12 U.S.C. 4902 · Freddie Mac PMMS

A best fit for the situation described, not financial advice or a buy/sell recommendation. Partner links never change a pick.

Your roadmap

  1. Decide your emergency fund first (several months of expenses) and subtract it from the cash you have. What's left is your real down payment budget.
  2. Get two Loan Estimates from the same lender for the same home: your smaller down payment and 20%. Compare the rate, points and monthly PMI on page 1.
  3. Run both in the calculator with those quotes. If it's close, keep the cash.
  4. If you take PMI, set a reminder for the 80% date and ask in writing to cancel it (Homeowners Protection Act).
  5. Don't use retirement money to reach 20% without pricing the taxes and penalties first.

What changes when you put less down

ItemWhat happensSource
PMIUsually required on a conventional loan with less than 20% down; it protects the lender, not youCFPB: PMI
Interest rateA higher loan-to-value usually means a higher rate; a bigger down payment may get a better oneCFPB: rate & LTV
Dropping PMIAsk at 80% of original value; must end at 78% or the month after the loan's midpoint12 U.S.C. 4902
Tax deductionStarting with 2026 returns, PMI counts as deductible mortgage interest again if you itemize; it shrinks 10% per $1,000 of AGI over $100,000 and is gone over $109,000 ($50,000 / $54,500 married filing separately)Pub. L. 119-21 sec. 70108 · 26 U.S.C. 163(h) · IRS Pub. 936
Cash you keepStays available for emergencies, repairs and moving costs; a down payment can only come back out by selling or borrowing against the home

Ask the lender for both quotes

Copy this into an email or your lender's portal:

Please send me two Loan Estimates for the same home price and loan program:
1) [10]% down payment, with monthly PMI shown
2) 20% down payment

For each, please confirm the interest rate, points, the monthly PMI amount, and the date PMI can be canceled at 80% of original value.

Lenders must send a Loan Estimate within 3 business days of getting your application. See our Loan Estimate checklist.

Show me the details

How the calculator compares them

  • It treats both options as the same household with the same monthly budget. Whichever option has the lower payment puts the difference into savings each month.
  • With the smaller down payment, the cash you didn't put down (20% minus your down payment) starts in savings and earns the rate you enter.
  • After the number of years you pick, it compares savings minus the loan balance. That's the money difference between the two choices.
  • PMI stops when the scheduled balance reaches 80% (if you ask) or 78% of the price, or at the loan's halfway point. Paying extra principal would end it sooner.
  • Results within $500 are called too close to call.

Can I deduct PMI?

Yes again, starting with tax year 2026, if you itemize deductions. A 2025 law (Pub. L. 119-21, sec. 70108) made mortgage insurance premiums count as home mortgage interest permanently. The deduction goes down 10% for each $1,000 (or part of $1,000) of adjusted gross income over $100,000 and is gone above $109,000 ($50,000 and $54,500 if married filing separately). It's reported on Schedule A, line 8d. Most people take the standard deduction, so the calculator doesn't subtract it. Sources: Pub. L. 119-21 sec. 70108 · 26 U.S.C. 163(h) · IRS Pub. 936

Other loan types

FHA loans charge their own mortgage insurance (MIP) with different rules, and VA loans have no monthly mortgage insurance. See FHA MIP rules.

Limits of this page

  • Not financial advice. Your Loan Estimates decide the real numbers.
  • The $150 PMI figure is an illustration, not a typical price. PMI depends on your credit score, down payment and insurer.
  • Savings rates change; the calculator holds your rate steady. Investing the cash instead of saving it adds risk this page doesn't model.
  • Fixed-rate loans with regular monthly payments only.

Why trust this: every rule links to the law or agency it comes from, with the date we checked it. The mortgage rate and savings rate are live, dated figures, example numbers are labeled, and the math is shown.

Not financial advice. We republish federal rules with dates and do simple math on what you type. Confirm your numbers with your lender's Loan Estimates.

Sources & as-of dates

FAQ

Is it better to put 20% down or pay PMI?

On money alone, 20% down usually wins, because you skip PMI and borrow less at your mortgage rate. Keeping the cash only comes out ahead if it earns more than your mortgage rate plus the cost of PMI on the extra amount borrowed (about 12.7% a year in our $400,000, 10%-down example at 7.4%). The main reason to put less down is to keep an emergency fund.

Do I need PMI with less than 20% down?

Usually, on a conventional loan. CFPB says PMI may be required with a down payment under 20% of the purchase price, and it protects the lender, not you.

Does a bigger down payment get a lower mortgage rate?

Often. CFPB says borrowers with a higher loan-to-value ratio will usually be offered a higher interest rate, and you may get a better rate with a larger down payment. Ask for Loan Estimates at both amounts.

Is PMI tax deductible in 2026?

Yes again, if you itemize. Starting with tax year 2026, mortgage insurance premiums count as mortgage interest (Pub. L. 119-21, sec. 70108). The deduction phases out between $100,000 and $109,000 of AGI ($50,000 to $54,500 married filing separately).

How long will I pay PMI?

On a conventional loan, you can ask to cancel when your balance is scheduled to reach 80% of the original value, and it must end at 78% or the month after the loan's midpoint (12 U.S.C. 4902).

Estimates, not financial advice. Taxes, insurance, PMI and fees vary by lender, county and city; confirm with your lender, dealer and state agency before acting.