Opportunity Cost of a Down Payment

Opportunity cost a down payment.

A down payment is like putting money in a tin can and burying it in the back yard.  The day you sell the house you get to dig the can up, blow the dust off, and usually need to add more money to the can in order to buy the next house. Since a house appreciates or depreciates the same if it is financed 100% or if it is paid in full with cash, one has to consider the cost of having their money tied up in their house.

Opportunity cost, in the context of this screen, is the future value of the down payment less the original down payment. This is achieved using a time value of money calculation and solving for Future Value.

Opportunity Cost = FV(down payment, assumed rate of return, holding period) - initial down payment.