Quick answer
On a $400,000 home at today’s 7.24% average, an extra $8,000 that lifts you from 18% to 20% down removes PMI and cuts the payment by $219 a month; putting it down stays ahead for about 10 years, 10 months. Below the 20% line, points overtake the bigger down payment after about 5 years, 9 months, assuming each point lowers the rate by an example 0.25 percentage point. If the cash is your only cushion, keeping it as reserves comes first.
Key facts
7.24%
30-year fixed average used here
Freddie Mac Primary Mortgage Market Survey · Week of Oct 29, 2026
Three uses for the same $8,000
Say you are buying a $400,000 home with a 30-year fixed loan, you have the down payment and closing costs covered, and $8,000 is left over. You can:
- Buy discount points. Each point costs 1% of the loan and lowers the rate. The mortgage points guide covers the break-even on points alone; here they compete with two other uses.
- Put it toward the down payment. A smaller loan means a smaller payment and, if it takes you to 20% down on a conventional loan, no private mortgage insurance.
- Keep it. Cash in the bank earns little, but it pays for a broken furnace without a credit card.
The comparisons below use today’s 7.24% average for every option, PMI at the midpoint of Freddie Mac’s $30–$70 per $100k a month range, and PMI ending automatically when the balance reaches 78% of the price. “Ahead” means the payments you saved plus the lower balance you would owe if you sold or refinanced at that point, minus the $8,000 you spent. Interest the cash could earn in savings is left out, which flatters points and the down payment slightly.
Below 20% down: points vs a slightly smaller loan
Start with 10% down ($360,000 loan). The extra cash buys $8,000 ÷ $3,600 per point = 2.22 points, or lifts the down payment to 12%, which still leaves you paying PMI.
| Option | Loan | Rate | P&I + PMI | PMI a month | 3 years | 5 years | 7 years | 10 years |
|---|---|---|---|---|---|---|---|---|
| Keep $8,000 as reserves | $360,000 | 7.24% | $2,633 | $180 | $0 | $0 | $0 | $0 |
| Buy 2.22 points | $360,000 | 6.68% | $2,499 | $180 | −$1,972 | +$2,069 | +$6,113 | +$13,406 |
| Put down 12% instead | $352,000 | 7.24% | $2,575 | $176 | +$1,856 | +$3,061 | +$4,234 | +$8,206 |
Points cut the payment by $134 a month; the smaller loan by $59. The down payment is ahead immediately because the $8,000 is still yours as equity, while points are a cost you recover month by month — they pass the keep-the-cash line after 4 years and pass the bigger down payment after 5 years, 9 months. At ten years points come out ahead in this example.
The catch is that the bigger down payment barely moves PMI here. Two more percent down lowers the loan-to-value ratio, but you are still above 80%, so the insurance stays until the balance is paid down.
When the cash gets you to 20%: the PMI line
Now say you already have 18% down ($328,000 loan). The same $8,000 takes you to exactly 20% — or buys 2.44 points.
| Option | Loan | Rate | P&I + PMI | PMI a month | 3 years | 5 years | 7 years | 10 years |
|---|---|---|---|---|---|---|---|---|
| Keep $8,000 as reserves | $328,000 | 7.24% | $2,399 | $164 | $0 | $0 | $0 | $0 |
| Buy 2.44 points | $328,000 | 6.63% | $2,265 | $164 | −$1,972 | +$2,888 | +$6,931 | +$12,960 |
| Put down 20% instead | $320,000 | 7.24% | $2,181 | None | +$7,616 | +$11,677 | +$12,754 | +$14,302 |
Crossing 20% removes about $164 a month of PMI on top of the smaller loan, so the payment drops by $219 against $134 for points. Without the extra cash, PMI would run until about 4 years, 6 months into the loan (4 years, 1 month with points, because a lower rate pays the balance down a little faster). Points only catch up once that PMI has gone: in this example they overtake the down payment after 10 years, 11 months.
$219
The down payment guide shows what each down payment level costs a month on its own; the point here is that the last few percent before 20% are the most valuable dollars you can put down.
The assumption that decides it: what a point buys
If a point buys less than 0.25 percentage point, points lose ground; if it buys more, they gain. The table runs both scenarios with three example values.
| Rate cut per point | 10% down: new rate | after 5 years | after 10 years | 18% down: new rate | after 5 years | after 10 years |
|---|---|---|---|---|---|---|
| 0.125 point | 6.96% | −$2,962 | +$2,629 | 6.94% | −$2,470 | +$2,579 |
| 0.25 point (used above) | 6.68% | +$2,069 | +$13,406 | 6.63% | +$2,888 | +$12,960 |
| 0.375 point | 6.41% | +$7,093 | +$23,970 | 6.33% | +$8,238 | +$23,303 |
For comparison, the bigger down payment is ahead by +$3,061 after five years and +$8,206 after ten in the 10% case, and by +$11,677 and +$14,302 when it removes PMI. Those figures don’t depend on the assumption — they come straight from today’s rate and the PMI estimate.
Two limits matter. A lender can only sell so many points: on a Qualified Mortgage of this size, total points and fees generally can’t exceed 3% of the loan — $10,800 on $360,000, and origination fees count toward it. And quotes move daily, so compare the price of points on Loan Estimates issued the same day.
What keeping the cash as reserves is worth
Points and a bigger down payment both turn cash into something you can’t easily get back: a lower rate, or home equity that you can reach only by selling, refinancing or borrowing against the house. Reserves stay liquid.
At 10% down the full payment on this home — principal, interest, tax at the national 0.89% ratio, insurance and PMI — is about $3,093 a month, so $8,000 covers roughly 2.6 months of payments. The CFPB suggests an emergency cushion of 3 to 6 months of expenses; three months of this payment alone is $9,280. Lenders also count reserves when they underwrite, and second homes and rentals need more of them.
Other ways the same cash can work
- Ask the seller to pay for points. Seller credits can buy points within your loan program’s limits on interested-party contributions, which leaves your own cash for the down payment. See how to lower your closing costs for those limits.
- Remove PMI later instead. On a conventional loan you can ask to cancel PMI once the balance reaches 80% of the original value, and extra principal payments get you there sooner — the extra payment calculator shows when.
- Consider the term. If the goal is less interest overall, a shorter term may do more than either option; see 15-year vs 30-year.
Run it on your own quotes
Set your reserve floor
Decide how many months of payments you want in the bank after closing, and only consider spending cash above that.
Ask for three quotes from the same lender, on the same day
Your planned down payment with no points, the same with the extra cash spent on points, and the bigger down payment with no points.
Check where you sit against 20%
If the extra cash crosses 20% down on a conventional loan, PMI disappears; that usually decides it.
Compare the monthly saving and the cost
Divide the points’ cost by their monthly saving for the simple break-even, and add the PMI you avoid to the down-payment option.
Match it to how long you’ll keep the loan
Use your shortest, likely and longest plans; the option that wins in all three is the safe choice.
You can test the PMI line directly in the mortgage payment calculator: switch the down payment between 18 and 20 and watch the PMI line disappear.
Frequently asked questions
Is it better to buy points or put more money down?
If the extra money takes you to 20% down on a conventional loan, putting it down usually wins for years because PMI disappears — in our $400,000 example it saves $219 a month against $134 for points. Below 20%, points tend to win only if you keep the loan well past their break-even.
How many points can I buy with my extra cash?
Divide the cash by 1% of the loan amount. $8,000 buys 2.22 points on a $360,000 loan. Lenders may cap points, and on a Qualified Mortgage total points and fees generally can’t exceed 3% of a loan this size.
Does a 20% down payment get a lower interest rate too?
Often it can, because conventional pricing changes with the loan-to-value ratio, but by how much depends on the lender and your credit. Ask for quotes at both down payments on the same day; our tables give the same rate to both so the PMI effect shows on its own.
Should I drain my savings to reach 20% down?
Not if it leaves you without a cushion. The CFPB suggests keeping 3 to 6 months of expenses, and PMI can be cancelled later — on request at 80% of the original value, or automatically at 78%.
What about an FHA loan?
FHA mortgage insurance doesn’t end at 20% down. The line that matters is the starting loan-to-value: at or below 90% (10% or more down), annual MIP ends after 11 years; with less down it generally lasts as long as the loan.
Are points or a bigger down payment better for taxes?
Points are prepaid interest and can be deductible if you itemize, under the IRS rules in Publication 936; a down payment is not deductible. For most buyers the tax effect is small next to the PMI and rate differences — see our mortgage points guide for the IRS tests.
Sources
- Freddie Mac Primary Mortgage Market Survey — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- Freddie Mac My Home — Typical PMI cost, low end; Typical PMI cost, high end (Oct 28, 2026)
- CFPB — Cost of one discount point (share of loan amount) (Oct 19, 2023)
- CFPB — PMI ends automatically at this share of original value; Ask your servicer to cancel PMI at this share of original value (Oct 28, 2026)
- CFPB, Federal Register 90 FR 57890 — Qualified Mortgage points-and-fees cap (loans of $137,958 or more) (2026 threshold)
- US Census Bureau, American Community Survey 2024 1-year — Effective property tax rate (median taxes ÷ median home value) (2024 ACS 1-year)
- Freddie Mac Research — Average homeowners insurance premium per $1,000 of home value (2023 data)
- CFPB — CFPB: emergency cushion, low end (months of expenses); CFPB: emergency cushion, high end (months of expenses) (Oct 28, 2026)
- HUD Mortgagee Letter 2023-05 — FHA annual MIP ends after 11 years when the starting LTV is at or below; FHA annual MIP lasts this long when the starting LTV is 90% or less (Feb 22, 2023)
Last reviewed Figures are checked against the sources above. Read our editorial policy. This page is general information, not financial advice — see the disclaimer.