5%, 10% or 20% Deposit? The Real Cost of Each Option in Australia

When Australians talk about saving a house deposit, the conversation usually goes one of two ways. Either someone says, "You need 20%, full stop," or someone else says, "Just get in with 5% before prices run away again." Helpful stuff. Very calming.

The truth is that 5%, 10% and 20% can all be valid deposit targets. They just lead to very different loans, very different upfront costs, and very different levels of post-settlement stress. The best deposit is not the one that sounds most responsible at a barbecue. It is the one that gets you into a property without turning your finances into a weekly hostage situation.

If you want to run your own numbers while you read, use the LMI Calculator, check government charges in the Stamp Duty Calculator, and make sure the repayments still fit in the Borrowing Capacity Calculator.

What your deposit actually changes

Your deposit changes four big things straight away:

• how much you need to borrow
• your loan-to-value ratio, or LVR
• whether Lenders Mortgage Insurance, or LMI, is likely to apply
• how much breathing room you have left after settlement

The core formula is simple:

LVR = loan amount ÷ property value × 100

On a standard purchase, a smaller deposit means a higher LVR. Once you borrow above 80% of the property value, LMI often enters the chat. That does not happen in every single case, because schemes, guarantees and lender waivers can change the outcome, but it is the normal starting assumption.

A simple comparison on a $750,000 property

Let us use a clean example and ignore state-specific stamp duty for a second so the comparison stays readable.

• 5% deposit: $37,500 deposit, base loan around $712,500, LVR about 95%
• 10% deposit: $75,000 deposit, base loan around $675,000, LVR about 90%
• 20% deposit: $150,000 deposit, base loan around $600,000, LVR 80%

That is the clean maths. The real-world version is messier, because you still need to allow for stamp duty, conveyancing, inspections, moving costs and often a buffer for repairs or surprise bills. At 5% and 10%, you may also need to account for LMI. Some lenders let you add LMI to the loan, which helps upfront cash flow but also means paying interest on that premium over time. Not ideal, but very common.

The 5% deposit option: fastest entry, highest pressure

A 5% deposit is the low-deposit sprint. It is appealing because the savings target looks achievable, especially if rents are already chewing through your budget.

Why people choose it:

• you can buy sooner
• you may stop renting earlier
• you reduce the risk of chasing a moving market for another year or two

What usually comes with it:

• a larger loan balance
• higher repayments
• less equity on day one
• often LMI on a standard loan
• less margin for rate rises or life nonsense after settlement

This is where the Rate Rise Impact Calculator becomes weirdly good for your emotional health. A loan that looks manageable at today's rate can feel a lot more exciting after a 1% rise, and not in the fun way. It is also one reason lenders test affordability using a serviceability buffer above the actual loan rate rather than just taking today's repayment at face value.

There is one important exception. Eligible first home buyers may be able to use the Australian Government 5% Deposit Scheme, which can allow a purchase with 5% deposit and no LMI, subject to current eligibility rules, price caps and participating lenders. Official program settings changed from 1 October 2025, removing income caps and waitlists, while eligible single parents and legal guardians may still be able to buy with as little as 2% deposit under the Family Home Guarantee pathway. That can make the 5% path much stronger than a normal 95% LVR loan.

The 10% deposit option: usually the practical middle ground

For a lot of buyers, 10% is where the numbers start behaving a bit better without demanding another geological era of saving.

Why 10% often works well:

• your loan is smaller than the 5% version
• LMI, if it applies, is often lower than at 95% LVR
• you may still buy materially sooner than if you wait for 20%
• you have a better chance of keeping some cash buffer after settlement

That last point matters more than people think. A buyer who uses every last dollar on the deposit and purchase costs can look disciplined right up until the first insurance bill, strata levy or broken hot water system lands. Home ownership is much nicer when you are not instantly one appliance away from drama.

If you are comparing 5% versus 10%, the right question is usually not, "Can I scrape together the bigger deposit?" It is, "How much does that extra 5% reduce the loan, the LMI pressure and the repayment stress?" Often the answer is enough to matter.

The 20% deposit option: cleanest structure, biggest delay

The classic 20% target is popular for a reason. On a standard loan, it often gets you to 80% LVR or lower, which is the usual line where many lenders stop charging LMI.

Why 20% still matters:

• you often avoid LMI on standard loans
• your repayments are lower
• you begin with more equity
• your overall debt is smaller from day one

The catch is time. On our $750,000 example, the jump from 10% to 20% means finding another $75,000 before you even think about stamp duty or buying costs. For many households that is not a quick top-up. It is another year or three of saving while rents, living costs and property prices continue to move like they have never heard the word "fair".

That is why avoiding LMI is not automatically the smartest financial outcome. Sometimes paying some LMI and buying earlier works better overall than waiting years for the perfect deposit while your target property price drifts higher.

The real cost is not just deposit plus LMI

This is the part buyers miss all the time. The real cost of each option is:

• the deposit
• plus stamp duty and purchase costs
• plus any LMI
• plus the repayment burden after settlement
• plus the cost of waiting if you delay buying

That final item is easy to ignore because it is not printed on an invoice. But it is still real. Waiting another 18 months might mean more rent paid, more years of share-house diplomacy, and potentially a higher purchase price later. Or it might mean you buy with a much safer buffer and sleep better at night. Both can be true depending on your numbers.

So which deposit target usually makes sense?

5% often makes sense when:

• you are eligible for a no-LMI government guarantee
• your income is stable and your borrowing position is strong
• you still keep a real emergency buffer after buying
• waiting longer would materially hurt your plans

10% often makes sense when:

• you want a better balance between buying soon and reducing risk
• you can shrink the loan and LMI meaningfully without waiting forever
• you want a more forgiving cash position after settlement

20% often makes sense when:

• you are already close to that target
• avoiding LMI would noticeably improve affordability
• you would still have healthy cash reserves after all buying costs
• waiting does not badly disrupt your plans

A better way to decide

1. Choose a realistic property price range.
2. Calculate 5%, 10% and 20% in dollars.
3. Estimate stamp duty and purchase costs.
4. Check whether LMI applies and whether it can be avoided through a scheme, guarantee or waiver.
5. Compare repayments at each level.
6. Make sure you still have a buffer after settlement.
7. Compare that against the likely cost of waiting longer.

If you want a quick starting point, combine the Stamp Duty Calculator, LMI Calculator and Loan Repayment Calculator. That trio gets you much closer to the real answer than asking your group chat what they reckon.

The bottom line

A 20% deposit is not the only smart option. A 5% deposit is not automatically reckless. And a 10% deposit is often the quiet achiever sitting in the middle, doing the least dramatic but most sensible job.

The right deposit is the one that gets you approved, keeps the loan manageable, and leaves enough cash behind that owning the place still feels like progress rather than a stress hobby.

Sources checked 3 August 2026: ASIC Moneysmart guidance on home loans and buying a house, official First Home Buyers information on the Australian Government 5% Deposit Scheme, and APRA guidance on the 3 percentage point serviceability buffer.