A bigger deposit usually gets you a lower interest rate, because it lowers your loan-to-value ratio (LVR), and lenders price loans in LVR tiers. The biggest step is at 20% deposit (80% LVR): below that you’ll normally pay lenders mortgage insurance (LMI) and may pay a higher rate. Some lenders cut rates further at 30% or 40% deposit. A bigger deposit also means a smaller loan, which on its own can save hundreds of dollars a month.
What LVR is and how to calculate it
LVR = loan amount ÷ property value × 100.
Example: buying an $800,000 home with a $160,000 deposit means borrowing $640,000. LVR = $640,000 ÷ $800,000 = 80%.
Lenders use the lower of the purchase price and their own valuation, so a low valuation can push your LVR up.
How deposit size affects your rate
| Deposit | LVR | What you can typically expect |
|---|---|---|
| 5% | 95% | Fewer lenders, higher rates, LMI usually required unless you use the 5% Deposit Scheme |
| 10% | 90% | LMI usually required, rates higher than at 80% LVR with many lenders |
| 15% | 85% | Smaller LMI premium, some lenders offer close to standard rates |
| 20% | 80% | No LMI, access to most lenders’ sharpest standard rates |
| 30% or more | 70% or less | Some lenders offer an extra discount |
Each lender sets its own tiers, so check the rate for your exact LVR. Learn how lenders price these risks in risk-based pricing.
Why lenders charge less for bigger deposits
- Lower risk of loss. If the borrower defaults, there’s more equity to cover the debt.
- A buffer against price falls. A 20% deposit can absorb a sizeable drop in value before the loan exceeds the property’s worth.
- Proven saving habits. Saving a larger deposit shows a lender you can manage money and handle regular commitments.
Lenders mortgage insurance (LMI)
LMI protects the lender, not you, if you default and the sale doesn’t cover the loan. It’s usually charged once at settlement and can often be added to the loan. The premium rises steeply as LVR increases, and on a large loan at 90 to 95% LVR it can run into tens of thousands of dollars. Ask your lender for an LMI quote before you decide how much to borrow.
You may avoid LMI through:
- The 5% Deposit Scheme (First Home Guarantee). Since 1 October 2025, eligible first home buyers can buy with a 5% deposit and no LMI, with no income caps or limit on places, subject to property price caps (for example $1.5 million in Sydney, $950,000 in Melbourne and $1 million in Brisbane). See first home buyer rates.
- A guarantor loan, where a family member uses equity in their home as extra security.
- Professional waivers that some lenders offer to certain occupations.
How deposit size changes your total cost
Buying an $800,000 home, at the same 6.63% rate over 30 years (our calculations, excluding fees and LMI):
| Deposit | Loan | Monthly repayment | Total interest |
|---|---|---|---|
| 10% ($80,000) | $720,000 | $4,613 | about $940,500 |
| 20% ($160,000) | $640,000 | $4,100 | about $836,000 |
The 20% deposit saves about $513 a month and roughly $104,500 in interest, before counting LMI and any rate difference, which usually widen the gap further.
Other things a bigger deposit helps with
- Borrowing power. A lower LVR gives you access to more lenders. See how much you can borrow.
- Loan features. Some lenders limit features or loan types at high LVRs.
- Negotiating. Low-LVR borrowers are attractive customers and have more room to ask for a discount.
Should you buy now or wait to save a bigger deposit?
Buying sooner with a smaller deposit:
- You start building equity earlier and may benefit if prices keep rising
- Government schemes can remove LMI
- But you’ll pay more interest, and possibly LMI and a higher rate
Waiting to save 20%:
- Lower rate, no LMI, smaller repayments
- But prices may rise faster than you can save, and you keep paying rent
A useful test: if prices in your target area are rising faster each year than you can add to your deposit, waiting may cost more than LMI. If not, saving longer usually pays. Already own a home? Rising values lower your LVR over time. See using equity to get a better rate.
Other factors that affect your rate
Deposit is one of several factors. See what affects your home loan rate for the full list.
Frequently asked questions
What deposit gets the best home loan rate?
Usually 20% or more, which takes your LVR to 80% or below and removes the need for LMI with most lenders. Some lenders offer an extra discount at 30% or 40% deposit.
What is LMI and when do I pay it?
Lenders mortgage insurance protects the lender if you default. It’s usually required when you borrow more than 80% of the property’s value, paid once at settlement, and can often be added to the loan. Eligible first home buyers can avoid it through the 5% Deposit Scheme.
Is it better to save a bigger deposit or buy sooner?
It depends on how fast prices are rising where you want to buy compared with how fast you can save. A bigger deposit means a lower rate, no LMI and smaller repayments. Buying sooner can make sense if prices are rising quickly or you can use a government scheme to avoid LMI.
Sources
- Housing Australia, First Home Guarantee
- ASIC Moneysmart, Choosing a home loan
- Canstar, Average home loan interest rates, as at 2 October 2026
General information only. It does not consider your objectives, financial situation or needs and is not credit advice.