Down Payment Calculator

Why 20 Percent Is the Number

It is where mortgage insurance stops. Below it, lenders normally require a policy that protects them if you default. At or above it, that requirement goes away. That is the entire origin of the figure.

It is not a minimum to buy. Plenty of loan programmes go far lower, some to three percent and some to nothing at all. What changes is the cost, not whether you can.

It is not a measure of readiness. Somebody with 20 percent and no emergency fund is in a worse position than somebody with 10 percent and six months of expenses set aside.

The threshold is on value, not price. If a valuation comes in below the agreed price, the ratio is calculated on the lower figure, which can push you back under the line unexpectedly.

How to Use This Calculator

Compare rows, not just the one you expect to pick. The gap between five and ten percent is usually smaller than people assume, and the gap between fifteen and twenty is often larger, because that is where the insurance disappears.

Set the insurance rate if you know it. It varies with credit score and deposit size, commonly between a third of a percent and one and a half percent of the loan a year.

Use the saving panel to price the wait. It shows what reaching 20 percent takes and what the insurance would cost over that same period, which is the comparison that actually decides the question.

Remember the interest column is a maximum. It assumes the loan runs the full term, and most do not, because people move or refinance.

What Mortgage Insurance Actually Is

It protects the lender, not you. This surprises people who have paid it for years. If you default, it pays them. Your obligation is unchanged.

You pay it because you are the higher risk. A borrower with little equity is more likely to walk away when values fall, so the cost of insuring against that is passed on.

It is priced as a percentage of the loan. Which means it costs more on a larger loan and falls away entirely once the equity threshold is met.

The name differs by country. Private mortgage insurance, lenders mortgage insurance, a higher lending charge. The mechanism is the same wherever it appears.

Loan to Value, and Why Lenders Care

It is the loan divided by the value. Ten percent down is a ninety percent ratio. It is the single number a lender looks at hardest after your income.

Rates are banded by it. Not smoothly, but in steps. Crossing from just above a band to just below it can lower your rate for the whole term, which is worth checking before settling on a deposit figure.

It moves after you buy. Payments reduce the loan and the market moves the value. Both change the ratio, which is what makes removing the insurance later possible.

The Case for Putting Less Down

You stop paying rent sooner. Every month spent saving is a month of housing cost that builds nothing. Against that, the insurance is often the smaller number.

Cash kept is optionality. A deposit spent to the last unit leaves nothing for the boiler, the roof, or a gap in income. Liquidity has real value that a lower monthly payment does not replace.

The insurance is temporary. It comes off once the equity threshold is reached, which happens through payments and price movement whether or not you planned for it.

Prices may move faster than you save. In a rising market, waiting two years to reach 20 percent of a higher price is not obviously progress.

The Case for Putting More Down

The payment is lower for the whole term. Not just until the insurance stops. A smaller loan is smaller for thirty years.

You may get a better rate. Because of the banding, a larger deposit can lower the rate itself rather than only the amount borrowed.

Equity is a buffer. If values fall, a larger deposit is what keeps you from owing more than the property is worth, which restricts selling and refinancing.

Total interest falls substantially. The final column above shows how much, and over a long term it is usually a larger figure than the deposit difference itself.

Getting the Insurance Removed Later

It does not always come off automatically. On many loans you have to ask once you reach the threshold, and some cancel it only at a lower ratio without a request.

Value increases count, not just payments. If the market has moved, a valuation can get you over the line years earlier than the payment schedule would.

Some loan types never remove it. Certain government backed programmes carry it for the life of the loan regardless of equity, and refinancing is the only way out. Check which kind you have before assuming.

It is worth a diary entry. Nobody will remind you, and the amount involved is usually worth the phone call.

Where to Keep the Money Meanwhile

Short horizons and markets do not mix. Money needed within a couple of years has no business being anywhere it can fall in value before you need it.

The rate matters less than you would think. Over two years the difference between accounts is usually much smaller than one month of extra saving.

Keep it separate from the emergency fund. Combining them makes it easy to spend the deposit on an emergency, and then to buy without a buffer.

Common Mistakes to Avoid

Treating 20 percent as a requirement. It is a threshold for one charge, not a condition of buying, and waiting for it has its own cost.

Spending the whole deposit on the deposit. Closing costs are separate and due in cash, and moving in always costs more than expected.

Assuming the insurance falls off by itself. Often it needs a request, and on some loan types it never comes off at all.

Ignoring the rate banding. Being one percent short of a band can cost more over the term than the extra deposit would have.

Frequently Asked Questions