Should You Put Down More Than 20% on a Home if You Have the Cash?

Many people struggle to make a 20% down payment. But what if you have the ability to put down more?

With home prices soaring on a national level, coming up with a 20% down payment on a home is more difficult than ever. Now to be clear, making a 20% down payment isn't always necessary, as some conventional mortgage lenders will accept less at closing. (Some lenders will take as little as 5%, though many require 10%.) But if you don't put down 20%, you'll get hit with private mortgage insurance, a costly premium that'll make it more expensive to own your home.

Though a lot of buyers today might struggle to make a 20% down payment, you might land in a different boat -- one in which you've saved enough to put down more than 20% on your home. But should you go that route, or stick to 20% down at closing?

Why it pays to make a higher down payment

The more money you're able to put down on your home, the less of a mortgage you'll need to take out. That means you'll spend less on your monthly payments and you'll also pay less interest over the life of your loan.

Let's say you're buying a home for $300,000. If you make a 20% down payment of $60,000, and you lock in a 30-year fixed loan at 3.2% interest, you'll have a monthly payment of $1,038 for principal and interest on that loan. And you'll spend a total of $133,839 on interest in the course of paying off your home.

Now, say you have enough money in savings that you can make an $80,000 down payment on that same home. In that situation, you'll be left with a monthly mortgage payment of $952. You'll also spend $122,687 on interest while paying off your home. That's a nice amount of savings all in.

Why you shouldn't make a higher down payment

While making a larger down payment will lower your monthly mortgage payments and also save you money on interest over the life of your loan, these days, mortgage rates are extremely competitive, and borrowing is cheap. As such, if there were ever a time to err on the side of borrowing more for a home, it's now.

Also, if you make a higher down payment, you'll end up tying up your money in a home rather than leaving yourself with access to it. Say you make more than a 20% down payment but decide you want to renovate in two years. At that point, you may need to borrow money to finance your home improvements, and the rate on a renovation loan may be higher than today's mortgage rates.

Similarly, you might run into a situation where you need money for home repairs, or for something not related to your home at all. At that point, you might regret sinking extra funds into a down payment when you could've stuck with 20%.

What's the right call?

Because mortgage rates are so low right now, you may want to stick to a 20% down payment on your home and buy yourself more financial flexibility in the process. But that said, if you can make more than a 20% down payment and still leave yourself with plenty of cash for emergencies or other purposes, then putting more money down on your home could make your monthly mortgage payments more manageable and help you spend less on interest. And in that situation, putting down more than 20% wouldn't be the wrong call, either.