Home Loan Deposit Calculator

Navigating the world of home loans can be a complex journey. And one of the first questions most wishful homebuyers ask on that journey is: ‘How much of a deposit do I need to buy a house?’ 

Having a deposit, and the size of said deposit, can be crucial in securing a home loan. Generally, a bank or lender will demand you have a deposit of at least 5% of a home’s value. But there are downsides to purchasing an expensive asset with a comparatively small slice of cash.

This guide is designed to demystify home loan deposits. So, whether you’re buying an apartment in the Queensland capital or a dugout in the South Australian outback, here’s all you need to know about the deposit you might want, nay, need, to purchase property in Australia. 

What is a home loan deposit? 

A home loan deposit, or home deposit, is the initial contribution a buyer puts down in order to purchase a property. The sum of the deposit is often expressed as a percentage of property’s value.  

Typically, Australian buyers are expected to have a deposit of at least 20% of their property’s value. Though, that’s not a rule. Plenty of buyers, particularly first home buyers, end up entering the market with a deposit of as little as 5%. 

If a house is worth $500,000, a 20% deposit would be $100,000 and a 5% deposit would be $25,000. 

What other costs are involved with buying a home?

It’s also worth remembering that a deposit isn’t the only cash a property buyer will need to hand over. 

They will also likely be up for conveyancing fees, mortgage establishment fees, stamp duty, and more. These can add up to thousands, if not tens of thousands, on top of a deposit.

Though, some buyers might find they are also eligible for government grants or discounts on some of those costs. 

The Savings.com.au Home Loan Calculator takes all this into consideration to tell you how much house you might be able to get with your hard-earned dosh.  

How to calculate a home loan deposit

If you know the value of a property and how much you’ve saved, you can easily work out the size of your deposit using the calculator above.

Simply enter your savings account’s balance, your ideal property’s price, and the Australian state or territory in which you live, and voilà! You’ve got a good idea on the purchasing power of your deposit.

But if you want to manually calculate how much of a property the savings you’ve built could afford you, you can use this formula: 

• (money saved/property price)*100 

As an example, if a buyer were to have saved $150,000 and wanted to put it down as a deposit for a house valued at $750,000, they would complete the formula as follows:

• (150,000/750,000) = 0.2

• 0.2 * 100 = 20

And hey presto, that $150,000 would represent a 20% deposit on a $750,000 property.

Of course, that formula won’t take into account costs such as stamp duty, nor grants or discounts available to first home buyers or owner-occupiers, for instance.

If you’re strangely averse to using this calculator - which estimates these for you - you can confirm all that information on state government websites.

Why does the size of your deposit matter? 

When it comes to buying a home, the size of your deposit can be crucial in determining your financial future. While a smaller deposit (between 5% and 15%) can get your foot in the door of a new home, a larger deposit (say, 20% or more) can see you in a healthy financial position once you’ve unpacked your bags and plugged in your kettle.  

Having a larger deposit can mean you:

1. Have a smaller loan-to-value ratio (LVR) 

The larger your deposit compared to the value of your home, the smaller your LVR will be. 

An LVR is a measurement that represents how much of a property you own outright. If you put down a 20% deposit, you’ll have bought 20% of your home outright and borrowed money to buy the remaining 80%. Thus, you would have an LVR of 80%. 

Aside from simply allowing you to flex your financial muscles (and ego), owning a larger portion of your home can see you eligible for more competitive home loan products. 

Lenders will typically offer their lowest interest rates to borrowers with LVRs of around 70% or less, while borrowers with notably high LVRs (90% or more, for instance) might face higher interest rates. Borrowers with higher LVRs are also at higher risk of becoming ‘mortgage prisoners’. 

As a general rule, a larger deposit represents less risk to a lender. That’s partly because a person with a larger deposit has typically proven that they can reign in their spending and focus on their longer-term financial goals. It’s also because, if a borrower has a larger deposit and later defaults on their home loan, a lender can be more sure of getting their money back.

If one person were to buy a house with a 5% deposit, for instance, and later defaulted on their loan, their bank would likely take their house and sell it. If that house were to sell for, let’s say, 10% less than what the borrower paid, the bank could end up out of pocket.

2. Could avoid or minimise lenders mortgage insurance (LMI) expenses 

That leads us to lenders mortgage insurance, better known as LMI. LMI is a charge that buyers entering the market with a LVR above certain thresholds might be asked to pay. It often adds up to thousands of extra dollars and can generally be rolled into a mortgage.

Typically, borrowers will need to pay LMI if they have a deposit of less than 20% of their home’s value. Though, some lenders will let borrowers take out loans with LVRs of 85% without paying LMI, and some borrowers can avoid LMI by finding a guarantor for their loan.

Many borrowers might be surprised to learn they won’t actually benefit from LMI at all. LMI exists purely to protect lenders from realising a loss in the event a borrower defaults on their home loan. 

A wishful homeowner with a relatively small deposit might face a choice between paying LMI in order to enter the market, waiting longer before buying and using that time to save more, or buying a cheaper home to make a deposit stretch further. Whatever path they choose to take, it will be an entirely personal decision.

3. Pay smaller home loan repayments and less interest

Finally, the larger a deposit a buyer puts down, the smaller their regular repayments will likely be. 

Example

Take two fictitious borrowers: Pete and Penny. 

Borrowers pay interest on every dollar they owe. If they owe fewer dollars, they will pay less interest, meaning their repayments will likely be smaller. Over the course of a home loan’s life, what starts as a small difference can have a big impact, as the above example shows. 

How your state or territory can influence your home deposit

If you’re a first home buyer in Victoria, you might need a larger home deposit than another first home buyer in Queensland, or vice versa. The reason why largely comes down to stamp duty discounts and first home buyer incentives. 

Stamp duty is a tax implemented by state governments, which means it typically varies between states and territories. 

If you’re purchasing a property, you’ll likely need to save enough to cover stamp duty on top of your home deposit. Though, stamp duty can be rolled into a mortgage the same way LMI can be, in many instances. 

Certain states also have first home buyer grants and incentives. Like stamp duty, these can differ in value and application. 

For instance, Queensland offers a first home buyer incentive to those building or buying a new dwelling for under a set threshold, and it waives stamp duty for first home buyers purchasing property for less than a different threshold.

Meanwhile, South Australia doesn’t offer any stamp duty concessions to first home buyers, but first home buyers purchasing a new home for under a set limit can get a grant worth thousands of dollars.