Saving for a deposit can be a major challenge for aspiring homebuyers, with a 20% contribution now more than $230,000 for a median dwelling in Sydney and $168,000 for a median dwelling in Brisbane.
Compare the Market’s Economic Director David Koch said paying extra for Lenders Mortgage Insurance (LMI) may be the only option to overcome the hurdle for buyers without access to the ‘bank of mum and dad’.
“Some lenders will allow you to apply for a home loan with a deposit as low as 5% but usually you will have to cough up more for Lenders Mortgage Insurance – a fee that accounts for additional risk,” Mr Koch said.
“Depending on your loan size and deposit, that could add tens of thousands of dollars to your loan, so it’s not a commitment that should be taken lightly.
“But is LMI still a dirty word? If owning a home is part of your long-term plan, and you are confident you can meet the repayments, you could still reap the rewards in equity if the value of the property increases enough before you decide to sell it.”
How much will you need to save to get a 20% deposit?
| City | Median dwelling value | 20% deposit |
| Sydney | $1,156,020 | $231,204 |
| Brisbane | $843,231 | $168,646 |
| Melbourne | $780,437 | $156,087 |
| Adelaide | $757,448 | $151,489 |
| Hobart | $655,170 | $131,034 |
Median dwelling values were sourced from CoreLogic’s Hedonic Home Value Index.
Mr Koch said many young buyers were finding themselves priced out of the market due to rapid price growth.
“With property prices climbing tens of thousands of dollars in some parts of the country, a lot of buyers feel that they are falling behind while trying to save that 20% deposit,” Mr Koch said. “Those people might weigh up the extra cost of LMI and find it might be worth it.
“Just remember that when LMI is added to your mortgage, you’ll also pay more in interest too and that can add thousands on to your repayments over the life of your loan.
“The median house and unit value in Australia increased 72% in the decade to 2022, helping to put hundreds of thousands of property owners on the path to financial freedom.
“Ask those borrowers if they regret taking out LMI and they’d probably say it was worth it.”
LMI pros
· Get into the market sooner
· Beat possible property price hikes
· Benefit earlier from any increases in property values
LMI cons
· Usually accompanied by a higher interest rate
· You will have a larger loan
· Loan repayments may be higher
LMI can cost several thousand to north of $20,000, depending on the size of your deposit and how much you’re borrowing.
| LMI premiums | |||
| Property value | 5% deposit | 10% deposit | 15% deposit |
| $500,000 | $14,871.82 | $8,679.89 | $4,712.67 |
| $700,000 | $27,946.62 | $15,498.00 | $7,540.27 |
| $1,000,000 | $39,923.75 | $22,140.00 | $10,771.82 |
| Assumptions: Calculated via Helia’s LMI fee estimator. Assumes buyer is a first home buyer with a 30-year owner-occupied home loan. Fees subject to change, guide only. LMI costs can also vary by state. Assumes an upfront LMI premium. Excludes stamp duty. | |||
For more information, please contact:
Natasha Innes | 0416 705 514 | [email protected]
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