Down Payment
BeginnerA down payment is the portion of a purchase price paid upfront in cash, with the rest usually financed by a loan, as when buying a home or car.
When buying property, lenders rarely lend the full price. The buyer pays part of it themselves. This upfront amount is the down payment, often called a deposit in many countries.
For example, a buyer purchasing a home for 300,000 with a 20% down payment pays 60,000 upfront and borrows 240,000.
The size of the down payment affects several things. A larger down payment means a smaller loan, lower monthly payments and less total interest. It also gives the buyer more equity in the property from the start, which provides a cushion if prices fall. Lenders often offer better interest rates when the down payment is larger, because their risk is lower.
Some lenders accept down payments as low as 5% or even less, but these loans often come with higher interest rates or, in some countries, a requirement to buy mortgage insurance that protects the lender.
Saving for a down payment is often the biggest hurdle for first-time buyers, which is why some governments offer schemes to help.
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