Absolutely! Paying more than necessary on the mortgage is a great way to reduce the total amount paid in the long run, regardless of the down payment amount.
Having a lower down payment brings forth three main issues:
- You may have more difficulty getting a mortgage in the first place.
- You have to pay mortgage insurance (PMI) until you get to 80% loan-to-value ratio (LTV).
- You have to pay more in interest (larger loan, more interest).
Paying more than necessary on the mortgage helps with 2 and 3, but not 1. Number 1 might not be an issue if you can still get the minimum down payment (3-5% from what I've seen) and your income is still enough.Assuming you can still get approved, paying more on the mortgage will save you a lot of money.
Plugging your numbers into this calculator (although any will do), gives a regular mortgage payment of:
- $830 in principal and interest
- $208 in property taxes (assuming 1.25% per year)
- $208 in home insurance (assuming 1.25% per year)
- $135 in PMI (assuming 0.875% per year)
- $1382 per month total
Assuming $200k property cost, $15,000 down payment (so closing costs are paid from other money), and 30 year loan at 3.5%.
With this you pay PMI for about 6 1/2 years (total of $10,530) and total interest paid of $114,064.
If you pay $500 more per month you pay off PMI in 2 1/2 years (total of $4,050) and total interest paid of $52,596.