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

Everyone knows the magic number is 20%. That is the classic Australian house-buying advice, usually delivered by someone who bought in 2009 and now speaks like they invented discipline.

The problem is that 20% is not the only path. Plenty of buyers purchase with 5% or 10% down. The real question is not just can you buy with a smaller deposit. It is whether the total cost, the loan size, and the stress level still make sense once you stop staring at the listing photos.

If you want the short version, here it is:

• 5% gets you in faster, but usually means a larger loan and often LMI.
• 10% is often a strong middle ground because it reduces the pain without demanding a heroic savings timeline.
• 20% is still the cleanest option for many standard loans because it often avoids LMI altogether.

Let us break down what each option really costs in Australia in 2026.

First, deposit is not the same thing as total cash needed

This is where a lot of buyers get stitched up. The deposit is only one part of the upfront bill.

On a $700,000 property, the deposit alone would be:

• 5% = $35,000
• 10% = $70,000
• 20% = $140,000

But in the real world, you may also need money for:

• stamp duty, unless you qualify for an exemption or concession
• conveyancing or solicitor fees
• building and pest inspections
• bank or settlement fees
• a basic emergency buffer after you get the keys

That last one matters more than people think. A buyer who lands with a smaller deposit and a cash buffer is often in a healthier position than a buyer who empties every account just to say they hit 20%.

What 5% really looks like

A 5% deposit usually means borrowing up to 95% of the property value. That is possible, but it is the most expensive of the three standard paths.

On a $700,000 purchase:

• deposit = $35,000
• base loan before any LMI = $665,000
• LVR = 95%

At that LVR, many standard loans will involve Lenders Mortgage Insurance. ASIC's Moneysmart explains that LMI generally applies when borrowers have less than a 20% deposit and that it protects the lender, not the borrower. In other words, you pay it and they get the safety blanket. Classic.

The upside of 5% is obvious. You may buy sooner. That can matter if rents are chewing through your budget or if saving the extra 5% to 15% would take years. The downside is that your loan is larger, your repayments are higher, and any LMI premium may be added to the loan, which means you could pay interest on it as well.

Why 10% is often the underrated option

The 10% deposit path does not get much fanfare, but for a lot of buyers it is the grown-up answer.

Using the same $700,000 example:

• deposit = $70,000
• base loan before any LMI = $630,000
• LVR = 90%

You may still pay LMI above 80% LVR, but it is generally lower than it would be at 95% LVR because the lender is taking less risk. Your repayments also start from a smaller loan amount, and you are not waiting as long as you would for a full 20%.

This is why 10% often ends up as the sweet spot. It lowers the pain on both sides. Less LMI pain than 5%, less waiting pain than 20%.

Why 20% is still the cleanest line

With a 20% deposit on a $700,000 property:

• deposit = $140,000
• loan = $560,000
• LVR = 80%

For many standard home loans, borrowing at 80% LVR or lower means no LMI. That is the main reason 20% remains the magic number. It is not morally superior. It is just financially cleaner.

The benefits are pretty plain:

• you often avoid LMI
• you start with a smaller loan
• your repayments are lower
• you have more equity from day one

The obvious downside is the savings hurdle. On a lot of capital city prices, waiting for a full 20% can take a long time. If the market rises while you save, or rent keeps hammering you in the meantime, waiting is not automatically the smartest move.

The repayment difference is not tiny

Deposit size changes more than the upfront cash. It changes the size of the loan you will be carrying for years.

Using a simple 30-year principal-and-interest example at a 6.2% interest rate, the monthly repayment on the base loan amount would be roughly:

• 5% deposit: about $4,073 a month on a $665,000 loan
• 10% deposit: about $3,858 a month on a $630,000 loan
• 20% deposit: about $3,430 a month on a $560,000 loan

Those figures do not include any LMI added to the loan, which could push the 5% and 10% scenarios a bit higher. This is why a deposit decision is really a cash flow decision too, not just a savings milestone.

If you want to test it with your own numbers, the Loan Repayment Calculator is the fastest reality check in the room.

What about first home buyer schemes?

This is where the answer gets less neat. Eligible buyers may be able to purchase with less than 20% deposit and avoid LMI through government-backed guarantee schemes. The Australian Government's low-deposit pathway is now called the Australian Government  5% Deposit Scheme (formerly known as the Home Guarantee Scheme), where eligible borrowers can buy with as little as 5% deposit without paying LMI, subject to property caps and lender participation. (firsthomebuyers.gov.au)

There are also some special cases, including certain family guarantee arrangements and lender-specific professional waivers. These can completely change the maths, which is why broad advice like "just save 20%" is often too blunt to be useful.

The catch, because there is always one, is that guarantee schemes still have eligibility rules and price caps. They are not a magical bypass for everyone.

When buying sooner with 5% or 10% can make sense

A smaller deposit can be rational if:

• your income comfortably supports the repayments
• you still have a buffer after settlement
• you are paying high rent already
• you may qualify for a guarantee or concession
• waiting another two or three years would materially change your plans

Remember that lenders test whether you can handle higher rates as well. APRA's guidance has for years expected lenders to assess many borrowers with a serviceability buffer of at least 3 percentage points above the loan rate. So being approved does not mean the loan will feel comfortable once council rates, insurance, repairs and the rest of adult life pile on.

When waiting for 20% is probably smarter

Waiting may be the better move if:

• buying now would leave you with almost no emergency cash
• your income is unstable or you are on probation
• your budget only just works at current rates
• you would need to borrow at the absolute edge of your capacity

There is nothing heroic about becoming house-poor. It is hard to enjoy home ownership while quietly panicking every time the hot water system coughs.

So which deposit target should most people aim for?

There is no universal answer, but there is a practical one:

• Aim for 5% if getting in sooner matters and the numbers still look safe.
• Aim for 10% if you want a better balance between speed and cost.
• Aim for 20% if you can get there without draining every dollar you own.

The smartest deposit is not always the biggest one. It is the one that gets you into the market without wrecking your cash flow, wiping out your buffer, or forcing you to survive on instant noodles and optimism.