Here's What Happens When You Put 50% Down on a Home

If you're signing a conventional mortgage, it's a great thing to be able to make a 20% down payment on your home, even though many lenders will accept less. Doing so allows you to avoid private mortgage insurance, a costly expense that's typically tacked onto your monthly mortgage payments and makes your home more expensive to own.

For many people, coming up with 20% down is a challenge these days due to the state of the market. But what if you have a pile of cash to put into your home down payment, so much so that you're able to pay for 50% of your home upfront?

At first, making a 50% down payment might seem like a good idea. But you should be aware of the drawbacks involved.

The upside of making a 50% down payment

There are two primary benefits to making a 50% down payment on a home. First, the more money you put down, the less you'll pay each month, thereby making those payments fit more easily into your budget.

As of this writing, the average rate on a 30-year mortgage is 6.82%, says Freddie Mac. So let's say you're buying a $300,000 home. If you put down 20%, your monthly principal and interest payments will be $1,567. If you put down 50%, your monthly principal and interest payments will be $979. That frees up $588 a month for you to spend on other things, or just over $7,000 a year.

Furthermore, if you make a 50% down payment on your home, you'll minimize the amount of mortgage interest you have to pay. In this example, putting down 50% leaves you paying a total of $202,613 in interest on your home loan, as opposed to $324,183 with 20% down. That's a savings of $121,570.

The downside of making a 50% down payment

It's easy to see why making a larger home down payment might appeal to you if you can swing it. But the problem with putting 50% down on a home is that you're tying up a lot of money in an asset that isn't very liquid. And that could cause problems if you end up needing cash down the line.

Let's say you make a 50% down payment on a $300,000 home instead of 20%, thereby spending an extra $90,000 upfront. What if you wind up needing to take a full year off of work to recover from an injury or illness and need $90,000 to cover your family's expenses during that time? What if your home ends up needing a series of very expensive repairs that amount to $90,000?

Suddenly, you're looking at having to borrow to access the funds you need. And while a home equity loan may be an option, you might pay more interest on that than a mortgage.

Also, the idea of saving $121,570 in mortgage interest over 30 years might appeal to you. But you should know that the stock market's average annual return over the past 50 years has been 10%. If you put $90,000 into a stock portfolio with that same return, in 30 years, it could be worth $1.57 million. So which would you rather do -- save $121,570 in mortgage interest, or walk away with $1.57 million?

It's definitely worth trying to make a 20% down payment on a home. Doing so could help you avoid the added expense of private mortgage insurance and help you keep your monthly payments to a reasonable level.

But proceed with caution if you're considering putting 50% down on a home. Though there's an upside to going this route, you might lose out financially after all's said and done.