In Australia, the standard down payment that you need when purchasing property is 20%. This means that if you are buying a property for $500,000 you would need a deposit of $100,000. Now, saving up a $100,000 deposit is no walk in the park and would take most people several years to achieve.
An alternative option to saving the deposit upfront is to take out a low deposit home loan. These home loans will only require you to have a deposit around 5 -10% instead of the required 20%. In home loan terms this is often called the LVR, or loan to value ratio, so if you have a 10 percent deposit your LVR will be 90%.
In recent years (post GFC) the lending criteria for home loans has been tightened so it is no longer possible to get a no deposit home loan. Even 5% deposit home loans are becoming rarer so if you are planning on purchasing property it is a good goal to aim for at least having a 10 percent deposit.
Will I have to pay lenders mortgage insurance?
Yes, If you decide to opt for a low deposit home loan you will need to pay lenders mortgage insurance or LMI. All home loans that have a LVR of 80% or more are required to take out this insurance. The cost for this insurance is added to your home loan amount.
It is important to understand that this insurance does not protect you if you can't meet your repayments. You would need to take out mortgage or income protection insurance to cover you in case of illness or redundancy. LMI is an insurance you pay to protect the bank or mortgage lender should you default on your repayments.
How much you need to pay for LMI will depend on the amount you are borrowing and your LVR. The lender will tell you how much this will be.
LMI is also not transferrable so if you move or switch loans you will not be able to transfer this insurance to your new lender or property. You would need to pay this again if you have not yet reached an LVR of 80%.
Comparing low deposit loan interest rates
If you are planning on purchasing your first home with a small deposit, then finding the right home loan is essential. Because while buying your first home does mean you’ll pay Lenders Mortgage Insurance (LMI), it doesn’t mean you still can’t a great deal on your home loan. Our Home Loans Interest Rates page can not only help you find a competitive interest rate, but it also help you compare a range of loan features from offset accounts to extra repayments.
How can I work out what my repayments will be?
We've made this super easy with our handy repayments calculator. Just plug in your loan amount and term and we'll instantly tell you what your monthly repayments will be so that you can begin budgeting.
Or simply head straight to our comprehensive search tool and get a ranking of loans based on price.