Compare low deposit home loans
There are a range of lenders in Australia that offer low deposit home loans. Rates, fees and features can vary substantially, so shop around.
Find and compare low deposit home loans
Fixed - 3 years
Borrow up to 95%
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Bundle your home loan and credit card with the advantage package and enjoy discounts on selected rates, fees and insurance.
Fixed - 2 years
Borrow up to 94.9999%
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Fixed - 5 years
Borrow up to 95%
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Fixed - 5 years
Borrow up to 95%
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What are low deposit home loans?
A mortgage is considered to be a low deposit home loan when the borrower's deposit to the lender is less than 20 per cent of the property value. This is sometimes called having a loan to value ratio (LVR) of higher than 80 per cent.
Borrowers can expect higher interest rates with low deposit home loan products, and therefore higher monthly repayments.
Also, borrowers who deposit less than 20 per cent of the property value will generally have to pay for lender’s mortgage insurance (LMI) to cover the loan, unless it is a guarantor home loan. This could wind up costing thousands of dollars.
Who offers low deposit home loans?
Low deposit home loans are offered by a wide range of banks, credit unions, building societies and non-bank lenders.
These loans are not as readily available as other home loans in Australia, but some financial institutions offer low deposit home loans for first time home buyers, as well as low deposit investment loans.
How do you compare low deposit home loans?
Here's what to consider when you're using RateCity’s home loan comparison tool to look for a low deposit home loan:
- Minimum deposit: The percentage of the property value the borrower will have to initially pay
- Advertised rate: The monthly interest rate to be paid on the loan, either as a variable or fixed rate, or a combination known as a ‘split loan’
- Comparison rate: A combination of the interest and fees the borrower will pay on the loan
- Monthly repayment: How much the borrower is expected to pay per month to the lender
- Total repayments: The amount the borrower will pay during the life of the loan
- Loan fees: The upfront and ongoing fees that the borrower will pay to the lender
- Minimum deposit: The percentage of the property value the borrower will have to initially pay
- Loan term: How long the borrower will have to pay off their loan.
What are the pros and cons of low deposit home loans?
- Low deposit home loans allow borrowers to enter the market months or even years ahead of schedule, and achieve the ‘great Australian dream’ of home ownership sooner than they otherwise might.
- Borrowers can stop spending ‘dead money’ on rent and instead use that money to build equity in their own home or investment property.
- If property prices are rising, borrowers might be able to buy their home for tens of thousands of dollars less than they might have to pay if they had to delay their purchase for a couple of years.
- Borrowers generally have to spend dead money on lender’s mortgage insurance (LMI) for low deposit home loans.
- Low deposit home loans tend to be more expensive than regular home loans, because they usually come with higher interest rates, and sometimes higher fees as well.
- Fewer lenders offer low deposit home loans, which means that lenders don’t have to fight as hard to win borrowers’ business.
Dan and Lisa are first home buyers who want to purchase a $600,000 property. Unfortunately, they only have enough money for a small deposit of 10 per cent ($60,000), which is below the 20 per cent that most lenders demand.
However, by making a home loan comparison, Dan and Lisa find a lender that will lend them 90 per cent of their new home's purchase price, or $540,000.
But there are two catches. First, they have to pay $13,392 in LMI, on top of stamp duty and other upfront costs. Second, their interest rate is 0.30 percentage points higher than it would’ve been if they’d had a 20 per cent deposit.
This hypothetical example is for illustrative purposes only.
How can you improve your chances of being approved for a low deposit home loan?
A low deposit home loan is riskier than a regular home loan, because the borrower has a larger loan amount to repay and is likely to be charged a higher interest rate. Before a lender will approve a home loan with a low deposit, they'll need to feel particularly secure about the borrower’s ability to make monthly repayments, and may require stricter eligibility criteria.
You can improve your chances of being approved for a low deposit home loan by establishing a good credit history, steady employment history and reliable income before making your loan application. You can also improve your chances by finding someone to guarantee your loan.
What are some alternatives to low deposit home loans?
One alternative to low deposit home loans is a guarantor home loan, also known as a guaranteed home loan. Lenders regard guarantor home loans as less risky than low deposit home loans, because the guarantor (usually a close family member) promises to pay off the mortgage if the borrower fails to do so. The guarantor provides further confidence to the lender by offering up their own property as security.
Another option is for borrowers to delay their purchase until they can save a 20 per cent deposit. If possible, this would allow borrowers to avoid LMI and qualify for lower interest rates. Keep in mind that many lenders prefer that your deposit is made up of genuine savings, such as income earned from your job.
If you're buying property for the first time as an owner occupier, you may be able to apply for your state or territory's first home owners grant (FHOG), which may help to supplement your savings to make up your deposit. There's also the federal government's first home loan deposit scheme (FHLDS) to consider, and other home loan incentives or concessions may also be available.
Remember that even if you don't get the best interest rate on your low deposit home loan, once you've spent some time making loan repayments and building up equity in your property, after a valuation you may be in a position to refinance to a mortgage that better suits your needs.
Property Personal Finance Writer
A property and personal finance writer, Nick Bendel covers property, loans, credit cards, superannuation, and other bank products. Nick has previously written for The Adviser, Mortgage Business, Lifehacker, Business Insider, Yahoo Finance, and InvestorDaily, and loves getting elbow-deep in the latest ABS, APRA and RBA data.
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Frequently asked questions
What is a low-deposit home loan?
A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.
For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.
As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.
What are the pros and cons of no-deposit home loans?
It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.
The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.
But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.
Does Australia have no-deposit home loans?
Australia no longer has no-deposit home loans – or 100 per cent home loans as they’re also known – because they’re regarded as too risky.
However, some lenders allow some borrowers to take out mortgages with a 5 per cent deposit.
Another option is to source a deposit from elsewhere – either by using a parental guarantee or by drawing out equity from another property.
How common are low-deposit home loans?
Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.
However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.
How can I get a home loan with no deposit?
Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.
How much deposit will I need to buy a house?
A deposit of 20 per cent or more is ideal as it’s typically the amount a lender sees as ‘safe’. Being a safe borrower is a good position to be in as you’ll have a range of lenders to pick from, with some likely to offer up a lower interest rate as a reward. Additionally, a deposit of over 20 per cent usually eliminates the need for lender’s mortgage insurance (LMI) which can add thousands to the cost of buying your home.
While you can get a loan with as little as 5 per cent deposit, it’s definitely not the most advisable way to enter the home loan market. Banks view people with low deposits as ‘high risk’ and often charge higher interest rates as a precaution. The smaller your deposit, the more you’ll also have to pay in LMI as it works on a sliding scale dependent on your deposit size.
How do I take out a low-deposit home loan?
If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.
Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.
How can I avoid mortgage insurance?
Lenders mortgage insurance (LMI) can be avoided by having a substantial deposit saved up before you apply for a loan, usually around 20 per cent or more (or a LVR of 80 per cent or less). This amount needs to be considered genuine savings by your lender so it has to have been in your account for three months rather than a lump sum that has just been deposited.
Some lenders may even require a six months saving history so the best way to ensure you don’t end up paying LMI is to plan ahead for your home loan and save regularly.
Tip: You can use RateCity mortgage repayment calculator to calculate your LMI based on your borrowing profile
What is Lender's Mortgage Insurance (LMI)
Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.
This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.
Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.
What is a loan-to-value ratio (LVR)?
A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage. Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more. LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment.
LOAN AMOUNT / PROPERTY VALUE = LVR%
While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.
Your current monthly home loan repayment. To accurately calculate how much you could save, an accurate payment figure is required. If you are not certain, check your bank statement.
The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.
How do I know if I have to pay LMI?
Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.
If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.
How much can I borrow with a guaranteed home loan?
Some lenders will allow you to borrow 100 per cent of the value of the property with a guaranteed home loan. For that to happen, the lender would have to feel confident in your ability to pay off the mortgage and in the security provided by your guarantor.
Remaining loan term
The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.
Select a number of years to see how much money you can save with different home loans over time.
e.g. To see how much you could save in two years by switching mortgages, set the slider to 2.
How can I get a home loan with bad credit?
If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.
One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.
Two points to bear in mind are:
- Many home loan lenders don’t provide bad credit mortgages
- Each lender has its own policies, and therefore favours different things
If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.
Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:
- You have a secure job
- You have a steady income
- You’ve been reducing your debts
- You’ve been increasing your savings
What is equity? How can I use equity in my home loan?
Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.
You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.
Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.
How do I refinance my home loan?
Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.
Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.
How do I save for a mortgage when renting?
Saving for a deposit to secure a mortgage when renting is challenging but it can be done with time and patience. If you’re on a single income it can be even more difficult but this shouldn’t discourage you from buying your own home.
To save for a deposit, plan out a monthly budget and put it in a prominent position so it acts as a daily reminder of your ultimate goal. In your budget, set aside an amount of money each week to go into a savings account so you can start building up the ‘0’s’ in your account. There are a range of online savings accounts that offer reasonable interest, although some will only off you high rates for the first few months so be wary of this.
If you aren’t able to save a large deposit, you can consider ways of entering the market that require small or no deposits. This can include getting a parent to act as guarantor for your home loan or entering the market with an interest only loan.