Larger Down Payment vs Investing Calculator

What your down payment actually earns

Putting more money down is not spending it — it is buying a return. Every extra dollar you put in stops accruing mortgage interest for as long as the loan runs, and if it takes you across the 20% line it also cancels your PMI. The useful question is what return that works out to, because then you can compare it directly against investing the money instead.

Start with the simple case. Compare 20% down against 30% down on the default house here — no PMI in either scenario, because both are at or above 20%. The return comes out at 6.50%, which is exactly the 6.5% mortgage rate. That is not a coincidence: cutting your loan by $40,000 removes precisely the payment that $40,000 was costing you, and the return on retiring a 6.5% liability is 6.5%.

Add PMI and the number jumps. Comparing 10% against 20% at the same 6.5%, the guaranteed return is 9.83% over the full loan term and 11.00% if you expect to sell or refinance in ten years. Your investments would have to clear 11% after tax and after risk for putting less down to come out ahead — and at the defaults here, a 7% portfolio leaves you about $21,548 worse off.

PMI is usually what decides this

The mortgage rate sets the floor, but the PMI premium is what moves the answer. Here is the return your investments would need to beat at a ten-year horizon, holding everything else at the defaults:

• No PMI involved — 6.50%. Exactly the mortgage rate.
• PMI at 0.3% — 9.19%.
• PMI at 0.5% — 11.00%.
• PMI at 1.0% — 15.57%.
• PMI at 1.5% — 20.18%.

That spread comes entirely from your credit score and your lender, and it is wide. A borrower quoted 0.3% faces a 9.19% hurdle, which a diversified portfolio might plausibly beat. At 1.5% the hurdle is 20.18%, which no realistic portfolio beats reliably — at that PMI rate, putting more down is not a close call.

The practical consequence is that you should not answer this question with a generic rule. Get your actual PMI quote first, change the field above to match, and let the number tell you. A rule of thumb like "always invest the difference" or "always put 20% down" will be wrong for one of those two borrowers.

Why the rate environment flips the answer

Because the floor is your mortgage rate, the rate you are quoted changes the conclusion. At the defaults with PMI at 0.5% and a ten-year horizon:

• At 3% — your investments need 6.37%.
• At 4% — 7.71%.
• At 5% — 9.07%.
• At 6.5% — 11.00%.
• At 8% — 12.69%.

Two things are happening at once. The lower the rate, the lower the base return from paying down debt — and the faster the loan amortises, so PMI ends sooner. At 3% PMI runs 72 months instead of 109, costing $10,800 instead of $16,350. Both effects push the hurdle down.

This is why the conventional wisdom changed so abruptly. In 2021, with rates near 3%, "invest the difference and put down as little as possible" was defensible arithmetic. At 6.5% the hurdle has roughly doubled, and the same advice is now wrong for most people. The advice did not change — the rate did.

A shorter loan term works the same way. Switch the term to 15 years and PMI ends in 37 months rather than 109, which drops the hurdle to 8.80%.

How long you stay matters less than you would think

People expect the holding period to dominate this decision. It mostly does not. The return you need to beat stays remarkably flat:

• Selling in 3 years — 11.07%.
• Selling in 7 years — 11.18%.
• Selling in 10 years — 11.00%.
• Selling in 20 years — 9.98%.
• Holding the full 30 years — 9.83%.

The reason it barely moves is that two effects offset each other. A short stay gives the monthly payment saving less time to compound, but it also gives the invested cash less time to compound — and you sell while still owing most of the extra $40,000, which counts against the invest-it side. The hurdle only drops materially if you hold close to the full term.

What does scale with time is the dollar amount. At a 7% return, putting the larger amount down is worth about $5,335 over three years, $21,548 over ten, and $81,777 over the full thirty.

One more property worth knowing: the home price does not change the answer. At $250,000 or $800,000 the hurdle is still 11.00% — only the dollar stakes change, from $13,468 to $43,097. The decision is the same at any price; the size of the mistake is what scales.

What the arithmetic does not capture

An 11% guaranteed return is a genuinely high bar, and in pure arithmetic terms it beats almost any diversified portfolio. But three things sit outside the calculation and routinely matter more than the spread.

Liquidity is the real cost

Money in a house is not accessible. To get it back you sell, refinance, or take out a HELOC — none of which are fast, certain, or free. The 11% return is real, but it is paid to you as a slightly lower monthly bill, not as cash you can use.

If the $40,000 is most of your savings, putting it into an illiquid asset is a different decision than the arithmetic suggests, however good the return looks. An emergency fund comes before optimising this trade.

Guaranteed versus expected

The 11% is risk-free, requires no decisions, and is not taxed. Beating it means taking market risk, and the risk is worst exactly when it matters: a bad final year before you sell can undo the advantage. That asymmetry is why a hurdle needs to be cleared by a comfortable margin, not matched.

Free money beats both sides

An employer retirement match beats any version of this trade. A 50% or 100% immediate return is not comparable to 11%. Contribute enough to get the full match before putting a dollar extra into the house or a brokerage account.

What this calculator leaves out

The number is a clean comparison of two uses of the same cash. It is deliberately simplified, and several of these can move the answer.

• Taxes. The return shown is tax-free because it arrives as avoided interest. Compare it against an after-tax investment return, or the comparison is not like-for-like.
• Home appreciation, which is identical for both options and therefore cancels out — but appreciation can also end your PMI early (see below).
• PMI cancellation through rising prices. This calculator holds the value flat, so if prices rise you can often drop PMI with a new appraisal well ahead of schedule, which lowers the hurdle.
• Refinancing later. If you can refinance out of PMI in two years, the PMI benefit shrinks and investing looks better.
• Investment fees, which come straight off your return and therefore raise the bar.
• Property tax and insurance, which are excluded because they are identical for both options on the same house.
• Anything about your actual risk tolerance, job stability, or whether you might need the cash.