We're buying a house at the moment are have decided on a 10% down payment even though we can afford 20%. Correct me if I'm wrong, but I believe there is a threshold where a down payment under 20% is the right play. See background and logic below.

1) House = $300k

2) Credit score for myself and wife is ~800

3) Debt:Income is superb. We owe nobody anything.

4) Fixed 30 yr Int Rate = 4.75% whether at 10% or 20%

So:

1) Loan at 10% = $270k. Principal/month is ~$340, interest/month is ~$1065, PMI is $45 for 8 years. Total = ~$1450.

2) Loan at 20% = $240k. Principal/month is ~305, interest/month is ~$950, no PMI for duration. Total = ~$1255

Therefore if my math is correct:

1) 20% dp = ~$200/month savings for 8 years @ anticipated return of 8% = $28k but no $30k to invest

2) 10% dp = $30k for 8 years @ anticipated return of 8% = ~$55k

3) **Equity after 8 years is ~$4k different **between a 10% and 20% dp

What am I missing? Or are we just at the right combination of home value, interest rate, and minimum time horizon?

I think you're forgetting to add the +$30,000 equity to your 20% down equation. You would have ~$25,000 more in equity with the 20% down payment after 8 years.

Also, why did you choose 8 years? it might be simpler to look at the whole 30 years.

1) 20% dp = $200/month for 6.5* years + $155/month for 23.5 years @ anticipated return of 8% = ~256k

2) 10% dp = $30k for 30 years @ anticipated return of 8% = ~$302k

You could be +$46k 30 years from now by putting down 10%, but that assumes 8% returns and that you can get the same mortgage rate for either loan which seems unlikely. If market returns were 7% you'd be +18k and at 6% it would be a wash. And of course that assumes consistent returns for 30 years.

*If home value doesn't change you would hit 20% equity after 6.5 years. PMI could be gone sooner if your home appreciates or later if it depreciates.

ETA: I've never had a mortgage and am far from an expert. I just did this as a mental exercise for my own sake so I may have missed something too.