5% vs 20% deposit: what actually changes

The conventional wisdom is that you need 20% to buy a home. That is not true. You can buy with 5% through the 5% Deposit Scheme, or even 2% through Help to Buy.

But a smaller deposit does cost more over time. You borrow more, you pay more interest, and unless you use a government scheme, you pay lenders mortgage insurance (LMI). The question is whether that cost is worth it compared to waiting years to save more.

The tool below shows the exact numbers. Adjust the property price and interest rate to match your situation.

What is LMI and why does it matter?

Lenders mortgage insurance protects the bank if you default. You pay for it, not them. It applies when your deposit is less than 20%. The cost depends on your loan size and LVR (loan to value ratio).

On a $700,000 property with a 5% deposit, LMI can be $24,000 or more. Most buyers add it to the loan (capitalise it), which means you pay interest on the LMI too.

The 5% Deposit Scheme waives LMI entirely. If you qualify, the 5% path becomes much cheaper.

The waiting game

Saving from 5% to 20% on a $700,000 property means finding an extra $105,000. At $2,000 a month in savings, that takes roughly 4 to 5 years.

In those years, property prices may rise. If the market grows 5% a year, that $700,000 property is $850,000 in 4 years. Your 20% target just moved from $140,000 to $170,000. You are chasing a target that is moving away from you.

This is not a reason to rush. It is a reason to run the numbers with a deposit tracker and talk to a broker.

What a broker would say

Most brokers will tell you that 20% is ideal but not essential. What matters more is whether you can comfortably afford the repayments. Use the borrowing power tool to see what affects how much you can borrow, then the cost calculator to see what it costs as a percentage of your take-home pay.

If repayments are under 30% of your take-home pay, most lenders consider that comfortable. Between 30% and 40% is manageable but tight. Above 40% is a stretch.

The three paths

• 5% with the scheme. No LMI. Lower deposit. Higher repayments. Get in sooner. Places are uncapped since October 2025.
• 10-15% without the scheme. Some LMI (less than at 5%). A middle ground. Many buyers land here.
• 20% outright. No LMI. Lower repayments. Takes the longest to save. Best total cost if you can get there without prices running away.

There is no universally right answer. The right deposit size depends on your savings, your income, how fast the market is moving, and how long you are comfortable renting.