How Down Payment Affects Your Mortgage
Your down payment directly reduces the loan amount (P) in the mortgage formula M = P[r(1+r)^n] / [(1+r)^n − 1]. A larger down payment means a smaller P, lower monthly payments, and less total interest. For a $400,000 home at 6.5% for 30 years: with 5% down ($20,000), P = $380,000 and M = $2,402/month plus PMI of ~$158/month. With 20% down ($80,000), P = $320,000 and M = $2,023/month with no PMI. The 20% scenario saves $537/month ($379 in payment + $158 in PMI) and $133,000+ in total interest over the loan life.