Down Payment

AAA

DEFINITION of 'Down Payment'

A type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through. Financing arrangements are made by the purchaser to cover the remaining amount owed to the seller.

Making a down payment and then paying the rest of the price through installments is a method that makes expensive assets more affordable for the typical person.

INVESTOPEDIA EXPLAINS 'Down Payment'

For example, because houses are extremely expensive assets, home buyers typically pay down payments that equal 5-25% of the total value of a home. The remaining 75-95% of the price will be covered by a bank or other financial institutions through a mortgage loan.

RELATED TERMS
  1. Private Mortgage Insurance - PMI

    A policy provided by private mortgage insurers to protect lenders ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Capitalized Cost Reduction

    Any upfront payment that reduces the cost of financing. Capitalized ...
  4. Mortgagor

    An individual or company who borrows money to purchase a piece ...
  5. Low-Down Mortgages

    Mortgage programs which require a minimal down payment. Most ...
  6. Mortgagee

    An entity that lends money to a borrower for the purpose of purchasing ...
RELATED FAQS
  1. How do you withdraw money from your 401(k)?

    The method and process of withdrawing money from your 401(k) will depend on your employer and the type of withdraw you choose. ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Budgeting

    Will You Break Even On Your Home?

    Calculate how much your property will need to appreciate to cover the costs of owning it.
  3. Budgeting

    Layaway Plans: Get The Goods Without Going Into Debt

    If using a layaway plan keeps you from having to use your credit card, it could be a smart move.
  4. Home & Auto

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  5. Home & Auto

    Wheels Of A Future Fortune

    Buy a quality car without driving your expenses through the roof.
  6. Budgeting

    Mortgages: How Much Can You Afford?

    Answering this means number-crunching as well as factoring in other considerations and expenses.
  7. Home & Auto

    The Benefits Of Mortgage Repayment

    Buying a home may be the biggest debt you'll ever incur. Learn why you should retire it sooner, rather than later.
  8. Home & Auto

    5 Steps To Scoring A Mortgage

    Find out what you can do to polish up some of the common flaws that put off lenders.
  9. Home & Auto

    5 Risky Mortgage Types To Avoid

    There are plenty of ways to end up with a bad mortgage. The risks of these five should make every homebuyer think twice before signing.
  10. Home & Auto

    How To Outsmart Private Mortgage Insurance

    It's possible to use a second mortgage to avoid this fee, but is it in your best interest?

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center