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.
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?