Mortgage down payment percentage:
formula and worked example

What the down payment percentage shows

The down payment percentage tells you how much of a property's price you fund from your own money rather than from the lender. A higher share means a smaller loan, lower interest paid over time and a larger buffer against a fall in the property's value.

Lenders look at the complement of this figure, the loan-to-value ratio, when they decide whether to approve you and what rate to offer. A down payment of 20% corresponds to a loan-to-value of 80%. Knowing both numbers helps you read an offer the way the lender does.

The formula: down payment divided by price

Divide the amount you pay upfront by the agreed purchase price and multiply by 100 to express it as a percentage.

• Down payment: the cash you contribute toward the property itself, in currency.
• Price: the agreed purchase price of the property, which may differ from the lender's valuation.

Only the portion that goes toward the price belongs in the numerator. Registration, stamp duty, brokerage and moving costs are separate outflows that do not raise your equity in the property.

The percentage is also useful in reverse. If you know the share you want and the price, multiply them to find the cash required: 20% of 4,500,000 is 900,000. If you know your savings, divide them by the price to see which price range is realistic. Doing both before house-hunting keeps the search inside what you can actually fund.

Worked example: 900,000 on a 4,500,000 property

1. 1Divide the deposit by the price: 900,000 / 4,500,000 = 0.20.
2. 2Convert to a percentage: 0.20 x 100 = 20%.
3. 3Find the loan needed: 4,500,000 - 900,000 = 3,600,000.
4. 4Confirm the loan-to-value: 3,600,000 / 4,500,000 = 80%.

The same two figures give you the down payment percentage and the loan-to-value, which always add to 100% when the loan covers the whole remainder of the price.

How lenders and borrowers read the percentage

Many markets treat a deposit of around a fifth of the price as a common reference point. Below it, lenders may charge a higher rate, ask for mortgage insurance or cap the loan, and above it they may offer better pricing. The exact thresholds vary by country, lender and loan type, so they are conventions rather than rules.

A bigger deposit does not automatically mean a better decision. If raising it means emptying your emergency fund, you trade a lower instalment for exposure to a single bad month. The right level balances cheaper borrowing against the cash you need to keep.

Think about what the deposit does to the monthly instalment too. With 900,000 down the loan is 3,600,000. A 22% deposit leaves 3,510,000, a reduction of 90,000 in the amount you pay interest on for the whole term. Over many years, that can outweigh the immediate cost of having less cash on hand, which is why many buyers stretch to a higher deposit if they can do so without draining reserves.

Gifts or family contributions toward the deposit may need documenting. Lenders often ask where the money came from, and a sudden large deposit without a trail can slow an application.

How a larger deposit changes the percentage

Adding 90,000 to the deposit lifts the share by two percentage points and cuts the loan by the same 90,000. Because the price is the divisor, a cheaper property lets the same deposit stretch further, while a pricier one dilutes it. Always recompute when the price is renegotiated.

Mistakes when working out the down payment

• Counting the loan processing fee or registration costs as part of the deposit.
• Dividing the deposit by the loan amount instead of the price, which gives a misleadingly high percentage.
• Using the asking price when the lender will lend against a lower valuation, so the deposit you need is larger than expected.
• Forgetting the token or booking amount already paid, leading to double counting or omission.

Finally, avoid borrowing the deposit on an unsecured loan. The lender usually checks, and even where it does not, the extra debt service cancels much of the benefit of the larger down payment.

Planning the deposit before you apply

Start from the price and the lender's maximum loan-to-value, then work backwards to the minimum cash required. Add the closing costs separately and decide what reserve you want to keep untouched after completion.

1. 1Take the maximum loan-to-value your lender offers and subtract it from 100% to get the minimum deposit share.
2. 2Multiply by the price to get the cash figure.
3. 3Add closing costs and moving expenses on top.
4. 4Keep several months of expenses outside the purchase.