How a low deposit loan can end up more expensive
Here's a simple example of 2 home loans with identical interest rates based on a $800,000 property and a 30-year loan term. The only difference is the deposit size. You can see how this changes both the loan amount (and therefore the repayments) and the LMI premium.
| Details | Low deposit | Full deposit |
|---|---|---|
| Property value | $800,000 | $800,000 |
| Deposit size | $40,000 (5%) | $160,000 (20%) |
| Loan amount | $760,000 | $640,000 |
| LMI costs | $34,982.80 | $0 |
| Interest rate (30-year loan) | 6.00% | 6.00% |
| Monthly repayments | $4,557 | $3,838 |
| Difference in monthly repayments | $719 more | $719 less |
In this hypothetical example, the low deposit borrower pays $34,982.80 in LMI premiums upfront, and an extra $719 a month in repayments. This is because they have to borrow more money.
Over the life of the loan this adds up to $139,006 in extra interest. Adding the LMI in, the low deposit home loan works out to be $173,988.80 more expensive.
But that doesn't mean the low deposit option is a bad idea
Choosing a low deposit home loan can still be worth it. You just need to have a clear idea of the costs involved. Plus, you can always minimise the interest charges over time by repaying more of the loan, or saving money in an offset account.
You also need to consider how long it would take you to save a 20% deposit. It could take you years.
Tighten up your spending
Is it possible for older Australians with only one income over 95K to purchase a home without a deposit?
Hi Maree,
It’s not possible to buy in most cases without any deposit at all, but you may be eligible for a loan with a 2% deposit under the Family Home Guarantee. There are some eligibility criteria, but as a guide: to buy a home worth $700,000, you would need a deposit of $14,000.
Hope this helps!
We want to buy our first house and we have 5% of the deposit for a house of 450000. We want to know what we must do to enter the government program of the first 10,000 buyers of the year 2020 and not pay the LMI. Could you guide us on how to buy the house to be considered in this program? what to do and how?
Hi Armando,
Thank you for contacting Finder.
Yes, the First Home Loan Deposit Scheme can help you to avoid the Lender’s Mortgage Insurance (LMI) as if you only have 5% for the deposit, the government will guarantee you the 15%. You can check the FHLDS requirements and how you can apply for FHLDS for more details.
I hope this helps.
Please do not hesitate to reach out again to us if you have additional questions.
Cheers,
Ash
If pay 20% deposit, does it need to look at income?
Hi Andrew,
Thanks for contacting Finder.
Yes, when you apply for a home loan, most lenders will have to look at your income. They are interested in how much you make and how likely you are able to repay your loan and manage all your obligations every month.
Please review our guide about applying for a home loan as well as the documents needed for a home loan. Once done, you may refer to the table above to compare low deposit home loans. When you are ready, press the ‘Go to site’ button to apply.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you. You can also contact the provider if you have specific questions.
I hope this helps.
Kind Regards,
Faye
looking to buy a country farmlet between5 to 10 acres with a 4bed dwelling and much shedding , property located in country Victoria and I only have 5% for deposit. Could you direct me to institutions that could provide finance just under $300.000
Hi Santo,
Thank you for reaching out to Finder.
The page we are on offers lenders that you could reach out to specific to the loan you are requesting but for the property you are looking for you may want to reach out to a real estate specialist who can further assist you in locating that type of property. You may also reach out to a mortgage broker who can assist you in providing lender options. Hope this helps!
Cheers,
Reggie
I own my unit (will rent the unit at $600 a week) and a 3-bed house rented for $360 (all fully paid). I have part pension. I would like to buy a unit near my children. Can I get a loan on my properties, rent, and pension to more than enough to pay for a mortgage?
Which lender should I approach?
Thank you.
Hi Maria,
Thanks for getting in touch with Finder. I hope all is well with you. 😃
Since you own a few properties, you can opt for a reverse mortgage. This type of loan allows you to borrow equity from your property and spend it on a new home. If this interests you, you can use our comparison table to compare your options. You can compare your options based on the interest rate, application fees, and ongoing fees, to name a few.
Alternatively, you can also check our pensioners home loan guide to learn more about how to get a home loan while you are on a pension. On that page, you will learn more about the considerations when applying for a home loan on a pension, what types of home loans might be available to pensioners, and how to compare home loans, to name a few.
Finally, please speak to a mortgage broker. They have the necessary knowledge and experience to help you explore your options. They will also take into consideration your whole situation before giving advice.
I hope this helps. Should you have further questions, please don’t hesitate to reach out again.
Have a wonderful day!
Cheers,
Joshua