The $2,280 a Year I Never Paid Because I Put 20% Down

Most people see a house as a monthly payment. I see it as a list of fees you either pay or refuse to pay. One of those fees is private mortgage insurance, and I paid exactly $0 of it.

I put 20% down. Not because a guru told me to. Because the math was ugly enough that I wanted no part of it.

What PMI actually is

PMI is insurance that protects the lender, not you. If you put down less than 20%, the lender charges you a monthly premium until you build enough equity. You get no coverage, no benefit, nothing. You just pay.

Typical rates run roughly 0.5% to 1.5% of the loan per year, depending on your credit and down payment. I will use 0.8% for the example, because it is realistic and not scary.

The math on a $300,000 house

Take a $300,000 home. These are illustration numbers, not my purchase price.

With 20% down you put in $60,000 and borrow $240,000. No PMI.

With 5% down you put in $15,000 and borrow $285,000. At 0.8%, PMI is about $2,280 a year, or $190 a month.

Now the part nobody mentions. On a 30-year loan at 6.5% with no appreciation, it takes close to ten years of payments to get that $285,000 balance down to $240,000, the 80% line. Ten years of PMI, shrinking slowly as the balance drops, adds up to roughly $20,000. Plus more interest, because you borrowed $45,000 more.

The honest counter-argument

Here is where I will not hype it. That extra $45,000 you did not put down could go into an S&P 500 index fund instead. At a historical average near 10%, which is never guaranteed, $45,000 grows to roughly $117,000 in ten years. On paper, investing the difference can win.

But look at what the extra down payment actually earns. Avoiding PMI is a return of about $2,280 on $45,000, or 5%. Avoiding the mortgage interest at 6.5% is another guaranteed return. Stack them and your extra down payment earns something like 11% in the early years, with zero market risk. That is not a bad deal for a decision you make once.

It is closer than the internet tells you in either direction. I am not going to pretend otherwise.

Why I chose 20% anyway

Because I do not run my money on what wins on paper. I run it on what I will actually stick with. Boring on purpose, relentless by design.

A smaller loan meant a smaller payment, and a smaller payment meant more of my income could go straight at the principal. I saved 50-60% of what I earned, and a house with no PMI and a smaller balance let me attack it hard. I paid it off in 2 years and 9 months with $13,500 in total interest. That is not a typo. If I had carried a bigger loan plus PMI for years, that number would be a lot higher.

I also bought before I enlisted, so I did not use a VA loan. If you are active duty, a VA loan can get you in with zero down and no PMI at all, and that changes the equation completely. This post is for the situation where you are choosing between conventional down payments.

How to decide for yourself

Run these three checks before you sign anything.

First, get the PMI quote in writing. Ask for the exact monthly figure at 5%, 10%, and 20% down. Do not guess.

Second, compare it to what you are already investing. If your down payment would drain the cash you were about to put in the TSP, you are robbing a better engine to fund a worse one. Keep your emergency fund intact either way.

Third, know when PMI drops off. On a conventional loan you can request removal at 80% loan-to-value and it ends automatically at 78%. Set a calendar reminder. Lenders do not volunteer it.

If you want the full order of operations for where each dollar should go, I laid it out on the strategy page and I update it as the numbers change.

The takeaway

I am a battle buddy, not a financial guru. I cannot tell you which down payment is right for your life. I can tell you that PMI is a fee that buys you nothing, and that the best fees are the ones you never pay.

Do the math before the lender does it for you.