# Points or a bigger down payment: where extra cash at closing saves more

> Extra cash at closing? Compare discount points, a bigger down payment and keeping reserves over 3, 5, 7 and 10 years, with and without PMI.

URL: https://mail.mortgage-math-us.com/blog/points-or-bigger-down-payment/  
Last reviewed: 2026-10-29 · By the MortgageMath US Editorial team

## 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

| Fact | Value | Source | As of |
|---|---|---|---|
| 30-year fixed average used here | 7.24% | [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) | Week of Oct 29, 2026 |
| Cost of one discount point | 1% | [CFPB](https://www.consumerfinance.gov/ask-cfpb/how-should-i-use-lender-credits-and-points-also-called-discount-points-en-136/) | Oct 19, 2023 |
| PMI ends automatically at | 78% | [CFPB](https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/) | Oct 28, 2026 |
| Typical PMI cost, low end | $30 per $100k a month | [Freddie Mac My Home](https://myhome.freddiemac.com/buying/breaking-down-pmi) | Oct 28, 2026 |
| Typical PMI cost, high end | $70 per $100k a month | [Freddie Mac My Home](https://myhome.freddiemac.com/buying/breaking-down-pmi) | Oct 28, 2026 |
| Qualified Mortgage points-and-fees cap | 3% | [CFPB, Federal Register 90 FR 57890](https://www.federalregister.gov/documents/2025/12/15/2025-22773/truth-in-lending-regulation-z-annual-threshold-adjustments-credit-cards-hoepa-and-qualified) | 2026 threshold |

## 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](https://mail.mortgage-math-us.com/buying/mortgage-points/) 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](https://mail.mortgage-math-us.com/buying/pmi/).
- **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.

> **Note: The one number no rule sets**
>
> How much a point lowers your rate is set by each lender on each day — the CFPB says it depends on the lender, the loan and the market. The tables assume 0.25 percentage point per point as an example, and the [section on that assumption](#per-point) shows what changes when it is smaller or larger. It is not a quote.

## 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.

*10% down on a $400,000 home, plus $8,000 of extra cash — money ahead of keeping the cash*

| 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.

*18% down on a $400,000 home, plus $8,000 of extra cash — money ahead of keeping the cash*

| 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
> Monthly saving when $8,000 moves a $400,000 purchase from 18% to 20% down, against $134 from buying points with the same cash.

The [down payment guide](https://mail.mortgage-math-us.com/buying/down-payment/) 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.

*Money ahead from buying points, by rate cut per point (example assumptions)*

| 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](https://mail.mortgage-math-us.com/glossary/reserves/) when they underwrite, and [second homes and rentals](https://mail.mortgage-math-us.com/blog/buying-a-second-home-or-rental/) need more of them.

> **Tip: Fund the cushion first**
>
> If spending the extra cash would leave you with less than a few months of payments in the bank, keep it. A lower rate is worth little if a job loss or repair forces you onto a credit card at a far higher rate.

## 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](https://mail.mortgage-math-us.com/blog/how-to-lower-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](https://mail.mortgage-math-us.com/tools/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](https://mail.mortgage-math-us.com/blog/15-year-vs-30-year-mortgage/).

## Run it on your own quotes

**How to choose between points, a bigger down payment and reserves**

1. **Set your reserve floor** — Decide how many months of payments you want in the bank after closing, and only consider spending cash above that.
2. **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.
3. **Check where you sit against 20%** — If the extra cash crosses 20% down on a conventional loan, PMI disappears; that usually decides it.
4. **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.
5. **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.

[Open the mortgage payment calculator](https://mail.mortgage-math-us.com/tools/mortgage-payment-calculator/)

You can test the PMI line directly in the [mortgage payment calculator](https://mail.mortgage-math-us.com/tools/mortgage-payment-calculator/?price=400000&down=20): 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](https://www.freddiemac.com/pmms) — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- [Freddie Mac My Home](https://myhome.freddiemac.com/buying/breaking-down-pmi) — Typical PMI cost, low end; Typical PMI cost, high end (Oct 28, 2026)
- [CFPB](https://www.consumerfinance.gov/ask-cfpb/how-should-i-use-lender-credits-and-points-also-called-discount-points-en-136/) — Cost of one discount point (share of loan amount) (Oct 19, 2023)
- [CFPB](https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/) — 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](https://www.federalregister.gov/documents/2025/12/15/2025-22773/truth-in-lending-regulation-z-annual-threshold-adjustments-credit-cards-hoepa-and-qualified) — Qualified Mortgage points-and-fees cap (loans of $137,958 or more) (2026 threshold)
- [US Census Bureau, American Community Survey 2024 1-year](https://data.census.gov/table/ACSDT1Y2024.B25103?g=010XX00US) — Effective property tax rate (median taxes ÷ median home value) (2024 ACS 1-year)
- [Freddie Mac Research](https://www.freddiemac.com/research/insight/homeowners-insurance-costs) — Average homeowners insurance premium per $1,000 of home value (2023 data)
- [CFPB](https://www.consumerfinance.gov/owning-a-home/prepare/figure-out-how-much-you-want-to-spend/) — CFPB: emergency cushion, low end (months of expenses); CFPB: emergency cushion, high end (months of expenses) (Oct 28, 2026)
- [HUD Mortgagee Letter 2023-05](https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf) — 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)
- [CFPB: How should I use lender credits and points?](https://www.consumerfinance.gov/ask-cfpb/how-should-i-use-lender-credits-and-points-also-called-discount-points-en-136/)
- [CFPB: When can I remove PMI from my loan?](https://www.consumerfinance.gov/ask-cfpb/when-can-i-remove-private-mortgage-insurance-pmi-from-my-loan-en-202/)

_General information, not financial advice._