Understanding 5% Deposit and Medium-Deposit Loan Options

First Home Buyers

8 Oct

Buying a home with a small deposit is more possible than it used to be, but there are important trade offs to understand. This article explains what a 5% deposit means in today’s market, what we mean by medium-deposit options such as 10 to 15 per cent, and the costs and risks you should weigh before deciding which route suits you.

What a 5% deposit looks like

A 5% deposit means you are borrowing 95 per cent of the property value, often called a 95% LVR loan. Recent government guarantee schemes have made 5% deposit loans more accessible by helping some buyers avoid Lenders Mortgage Insurance or LMI.

That guarantee does not remove the need for a proper lending assessment and eligibility rules apply through participating lenders.

The real costs of borrowing at 95% LVR

Even where LMI is removed by a government guarantee, borrowing at 95% LVR increases your monthly repayments and leaves you with very little equity if house prices fall. Lenders see higher LVRs as higher risk, which often means higher interest rates or stricter servicing checks.

Independent analysis and commentary have pointed out that while the scheme helps people get in earlier, many buyers will face larger repayments and a greater risk of housing stress if their income or interest rates change.

What medium-deposit options offer - 10 to 15 per cent

A medium deposit - commonly 10 to 15 per cent - sits between the speed of a low deposit and the security of a 20 per cent deposit. With a 10 or 15 per cent deposit you may still pay LMI but the premium is smaller, and some lenders offer discounts or LMI waivers at 15 per cent depending on product and credit profile.

A larger deposit reduces your LVR, lowers repayments, and gives you a buffer against price falls. Many lenders and broker guides compare 90% and 85% LVR products to show how much interest and LMI you could avoid by adding just a little more to your deposit.

How LMI and government guarantees differ

LMI is an insurance product that protects the lender if you default and is typically charged when your deposit is under 20 per cent. A government guarantee replaces the lender’s need for LMI for eligible borrowers by covering part of the loan instead.

That sounds similar but they are not identical: LMI is a one-off premium often passed to the borrower, while a guarantee has eligibility rules and may be limited to certain buyers or price caps at various times. Always check whether an offer is a true LMI waiver or a government-backed guarantee and what the eligibility conditions are.

Practical considerations when choosing between 5% and medium deposits

Budget impact: Run repayment scenarios for different deposit levels and interest rates to see real monthly costs.
Additional costs: Stamp duty, conveyancing and inspection fees are still payable even with a small deposit.
Future plans: Think about how long you expect to hold the loan and whether you can build equity quickly enough to refinance or remove LMI.
Credit profile and documentation: Lenders will look closely at income, savings history and living expenses for low deposit applications. Using a guarantor or showing genuine savings can improve approval chances. Independent comparison sites and broker checklists make these differences clear.

Conclusion

A 5% deposit route can get you into the market sooner and government guarantees have widened access for eligible buyers. That reward comes with higher loan-to-value ratios, greater repayment burden and less protection against market falls.

Medium-deposit options such as 10 to 15 per cent often reduce costs, lower your LVR and give a safer financial buffer. Choose the path that matches your tolerance for risk, your cash flow and your long-term plans.