The short version
- A 20% deposit usually means no lenders mortgage insurance.
- It opens up more lenders and lower rates.
- Keep the buying costs separate, so your deposit stays at 20%.
Why 20% matters
A 20% deposit is the standard Australian lenders look for. With it, you borrow 80% or less of the property's value, which lenders treat as lower risk.
- No LMI. Most lenders don't charge lenders mortgage insurance with a 20% deposit, which can save thousands of dollars.
- No guarantor needed. Buyers with smaller deposits often ask family to guarantee part of the loan; with 20% you don't need to.
- Lower rates and simpler approval. Many lenders offer their lower rates at 80% or less, and a bigger deposit, of 30% or 40%, can lower the rate further with some lenders.
Government help with a 20% deposit
Most schemes are built for buyers with smaller deposits, so with 20% you may not need, or qualify for, the 5% Deposit Scheme or the Family Home Guarantee. You may still be eligible for your state's First Home Owner Grant, mostly for newly built homes, and for stamp duty discounts or exemptions for first home buyers. The First Home Super Saver Scheme can help you build the deposit through voluntary super contributions.
Keep the buying costs separate
Keep money aside for stamp duty, conveyancing, inspections, removalists, council rates and any repairs, so they don't come out of your deposit and push you under 20%.
Pros
- No lenders mortgage insurance, saving thousands.
- Access to lower rates and more lenders.
- Some equity from day one, as a buffer if prices fall.
Cons
- Takes longer to save, while prices and rent move.
- Ties up savings you might want as a buffer.
- Stamp duty and buying costs come on top.
What to compare
Start with the rate for your situation: the rate a lender offers depends on whether you'll live in the home or rent it out, how you repay, and the size of your deposit. The comparison above picks each lender's rate for your choices.
Then look past the rate.
- Fees: upfront fees, and annual package fees that often come with an offset account.
- Features: an offset account, redraw, extra repayments and the option to split the loan between fixed and variable.
- The comparison rate, which adds standard fees to the rate for an example loan of $150,000 over 25 years.
- Any cashback, but only after the rate and fees, since a higher rate can cost far more over the life of the loan.
Loan types and features
- Variable or fixed. A fixed rate gives certainty for a set period, usually one to five years, then reverts to variable. Fixed loans tend to have fewer features.
- Split loans, part fixed and part variable.
- Principal and interest, where each repayment pays off some of the loan, or interest only for a set period, which keeps repayments lower but doesn't reduce the debt.
- A term of up to 30 years.
- An offset account, where your savings reduce the interest charged, or extra repayments with redraw.
- Fees: application, monthly or annual package fees, and fees for breaking a fixed rate or discharging the loan.
Making your application stronger
- Send a complete application with all the documents the lender asks for. Missing paperwork slows things down, and a declined application stays on your credit report.
- Check your credit report before you apply and fix any mistakes.
- Cut back on spending in the months before you apply. Lenders check it against your income and a benchmark of typical living costs.
- Check the lender's rules on the property. Some want a bigger deposit for small apartments or homes in certain postcodes.
- A steady job history helps. Self-employed and casual workers can still borrow, but need more paperwork.
- Some professions, such as doctors, lawyers and accountants, can borrow more with a smaller deposit or without LMI.
Before you apply
Lenders look at your income, your debts and credit limits, your spending and your credit history. Paying down cards and cutting card limits can raise how much you can borrow.
Pre-approval tells you what a lender may lend, so you can house hunt with a budget. Each application can show on your credit report, so compare first and apply to one lender at a time.
Alternatives
- Buying sooner with 5% or 10%, using a government scheme or guarantor.
- Refinancing your current loan, if you already own a home. A lower rate on your existing loan can save more than a new product.
- A mortgage broker, who can match you with lenders that suit your situation.