Here’s What Happens When You Put 50% Down on a Home

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

Making a higher down payment on a home could leave you with smaller mortgage payments. But read on to see why you may not want to put down too much. [[{“value”:”

If you’re signing a conventional mortgage, it’s a great thing to be able to make a 20% down payment on your home, even though many lenders will accept less. Doing so allows you to avoid private mortgage insurance, a costly expense that’s typically tacked onto your monthly mortgage payments and makes your home more expensive to own.

For many people, coming up with 20% down is a challenge these days due to the state of the market. But what if you have a pile of cash to put into your home down payment, so much so that you’re able to pay for 50% of your home upfront?

At first, making a 50% down payment might seem like a good idea. But you should be aware of the drawbacks involved.

The upside of making a 50% down payment

There are two primary benefits to making a 50% down payment on a home. First, the more money you put down, the less you’ll pay each month, thereby making those payments fit more easily into your budget.

As of this writing, the average rate on a 30-year mortgage is 6.82%, says Freddie Mac. So let’s say you’re buying a $300,000 home. If you put down 20%, your monthly principal and interest payments will be $1,567. If you put down 50%, your monthly principal and interest payments will be $979. That frees up $588 a month for you to spend on other things, or just over $7,000 a year.

Furthermore, if you make a 50% down payment on your home, you’ll minimize the amount of mortgage interest you have to pay. In this example, putting down 50% leaves you paying a total of $202,613 in interest on your home loan, as opposed to $324,183 with 20% down. That’s a savings of $121,570.

The downside of making a 50% down payment

It’s easy to see why making a larger home down payment might appeal to you if you can swing it. But the problem with putting 50% down on a home is that you’re tying up a lot of money in an asset that isn’t very liquid. And that could cause problems if you end up needing cash down the line.

Let’s say you make a 50% down payment on a $300,000 home instead of 20%, thereby spending an extra $90,000 upfront. What if you wind up needing to take a full year off of work to recover from an injury or illness and need $90,000 to cover your family’s expenses during that time? What if your home ends up needing a series of very expensive repairs that amount to $90,000?

Suddenly, you’re looking at having to borrow to access the funds you need. And while a home equity loan may be an option, you might pay more interest on that than a mortgage.

Also, the idea of saving $121,570 in mortgage interest over 30 years might appeal to you. But you should know that the stock market’s average annual return over the past 50 years has been 10%. If you put $90,000 into a stock portfolio with that same return, in 30 years, it could be worth $1.57 million. So which would you rather do — save $121,570 in mortgage interest, or walk away with $1.57 million?

It’s definitely worth trying to make a 20% down payment on a home. Doing so could help you avoid the added expense of private mortgage insurance and help you keep your monthly payments to a reasonable level.

But proceed with caution if you’re considering putting 50% down on a home. Though there’s an upside to going this route, you might lose out financially after all’s said and done.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More