House deposits, LVR and why 20 percent still matters
How a deposit becomes a loan-to-value ratio, when lenders charge mortgage insurance, and why a 5% deposit is not one-quarter of a 20% one in cost.
Last reviewed 7 September 2026 · about 9 minutes to read · written and checked by the OzCalc editorial team
Start with the deposit, not the repayment
Most people open a mortgage calculator first, because the monthly number feels like the decision. The number that actually decides the loan is the deposit. It sets the size of the debt, the LVR, whether LMI is charged, and only then the repayment. Moneysmart’s deposit guide puts saving first for that reason, and so does this one.
Deposit = purchase price × deposit percent Loan = purchase price − deposit LVR = loan ÷ property value × 100 Property value = the lower of the purchase price and the lender’s valuation
Notice that LVR is not “100% minus the deposit percent” once a valuation comes in below the price. A 20% deposit on an $800,000 contract is $160,000, but if the bank values the place at $760,000 the loan of $640,000 is an 84.2% LVR and LMI can reappear.
An $800,000 purchase at three deposits
Same house, three deposits
Jordan is buying an $800,000 home. The lender’s valuation matches the price. Interest is 6% over 30 years. LMI premiums below are rounded illustrations, not a quote — lenders price LMI on the loan, the LVR band and the applicant.
- 20% deposit
- $160,000 down, $640,000 loan, 80% LVR, typically no LMI
- 10% deposit
- $80,000 down, $720,000 loan, 90% LVR, LMI often in the tens of thousands
- 5% deposit
- $40,000 down, $760,000 loan, 95% LVR, LMI higher again
- Repayment on $640,000
- About $3,837 a month at 6% over 30 years
- Repayment on $760,000
- About $4,557 a month — $720 more, before any LMI is capitalised
The 5% path saves $120,000 of cash up front and costs more every month for 30 years, plus an LMI premium that is commonly added to the loan. Whether that trade is worth it depends on rent, how fast you can save, and whether prices are moving while you wait — not on the deposit percentage alone.
| Deposit | Cash down | Loan | LVR | What usually happens |
|---|---|---|---|---|
| 20% | $160,000 | $640,000 | 80% | Standard home-loan pricing, no LMI |
| 15% | $120,000 | $680,000 | 85% | LMI typically required |
| 10% | $80,000 | $720,000 | 90% | LMI, and some lenders tighten serviceability |
| 5% | $40,000 | $760,000 | 95% | Fewer lenders, higher LMI, stricter assessment |
LMI is priced by the insurer and the lender, not by a public formula, which is why OzCalc will not invent a premium. Treat any web “LMI calculator” that does not name the insurer as a guess.
LMI protects the bank
Lenders mortgage insurance pays the lender if you default and the sale does not cover the debt. You pay the premium. You do not get a payout. That is the part people miss when a broker says “you can buy with 5%”. You can; you are also buying an insurance policy for the bank.
Some first-home schemes replace LMI with a government guarantee. The cash-flow effect is similar — you borrow more than 80% without paying a premium — but the eligibility rules, price caps and participating lenders are specific and they change. Do not assume a guarantee from a blog post that does not name the current scheme.
Saving the deposit is a different calculation
Once you know the dollar target, the question becomes how long it takes. That is compound interest plus a regular transfer, not a mortgage formula. The deposit goal calculator works backwards from a target; the compound interest guide explains why the frequency of the transfer matters more than people expect.
The order that avoids the usual surprise
- Work out the cash deposit with the deposit calculator.
- Convert it to an LVR with the LVR calculator and decide whether you are above the 80% line.
- Price the repayment on that loan with the mortgage calculator, then read how mortgage interest is charged.
- Add stamp duty, inspections and a buffer for a low valuation before you call the result a plan.
Common questions
What is LVR?
Loan-to-value ratio: the loan as a percentage of the property’s value. On an $800,000 purchase with a $160,000 deposit the loan is $640,000 and the LVR is 80%. Lenders use the lower of the purchase price and the bank’s valuation.
Why does 20% keep coming up?
Most lenders do not charge lenders mortgage insurance at or below 80% LVR, which is a 20% deposit on a straightforward purchase. Above 80% they usually require LMI, which protects the lender — not you — if the property is sold for less than the debt.
Is LMI a waste of money?
It is a real cost of borrowing more than 80%. On some purchases it is still cheaper than waiting years to save the last 5%, especially if rent and prices are rising while you save. It is not a fee you should ignore when comparing a 15% deposit with a 20% one.
Does the deposit include stamp duty?
No. Stamp duty, conveyancing, building and pest inspections, and often lenders mortgage insurance are extra cash you need on top of the deposit. A “20% deposit” that leaves nothing for duty is not a 20% deposit you can actually settle with.
Can I use the First Home Guarantee to avoid LMI?
Eligible buyers may purchase with a smaller deposit and a government guarantee instead of LMI, subject to price caps, income caps and the scheme rules of the day. Those rules change. Check the current Housing Australia scheme rather than a calculator.
Is a 5% deposit a quarter of the cost of a 20% deposit?
On the cash you put down, yes — $40,000 versus $160,000 on an $800,000 home. On the total cost of buying, no, because the 5% path usually adds LMI and a larger loan, so interest over the term is higher as well.
What value does the lender use if the valuation comes in low?
The lower of the purchase price and the valuation. If you agreed $800,000 and the bank says $760,000, an $80,000 deposit is 10% of the price but only about 10.5% of the valuation, and the LVR is calculated on $760,000. The shortfall has to come from you.
Try it with a calculator
- DepositTurn a purchase price and deposit percent into the cash needed, loan size and LVR.
- LVRCalculate LVR and equity from a loan amount and property value.
- Deposit goalSee the monthly savings needed to reach a home deposit target from a price and deposit percent.
- MortgageEstimate loan repayments, total interest and the principal/interest split for an Australian home loan.
Keep reading
- How mortgage interest is charged and repaidWhy the first years of a loan are mostly interest, what an extra $100 a month really saves, and how an offset account compares to a redraw.
- Why monthly rent is not weekly rent times fourAustralian rent is advertised weekly and often charged monthly. The 52-week year explains the shortfall that catches out new renters every year.
- How Australian take-home pay is actually calculatedFollow a $95,000 salary from gross to bank account: PAYG withholding on each pay, year-end income tax, the low income tax offset and the Medicare levy.
Sources
Moneysmart (ASIC)
Last reviewed 2026-08-19
Moneysmart (ASIC)
Last reviewed 2026-08-19
Moneysmart (ASIC)
Last reviewed 2026-09-07
Moneysmart (ASIC)
Last reviewed 2026-08-19
Estimates only. Not tax, legal or financial advice. Check official sources before relying on a figure.
Rules change and mistakes happen. If a figure on this page looks wrong, tell us and we will check it against the source.