The Pros and Cons of a 10% Deposit Home Loan

What a 10% Deposit Actually Means for Your Purchase

A 10% deposit means you borrow 90% of the property value. If you're buying at $600,000, you put down $60,000 and borrow $540,000. The loan to value ratio sits at 90%, which triggers Lenders Mortgage Insurance in most situations. You'll also need to cover stamp duty and settlement costs separately, unless your state offers concessions that reduce those amounts.

Most lenders accept a 10% deposit for both owner-occupied purchases and investment properties. The deposit must be genuine savings held for at least three months, though some lenders accept a combination of savings, equity from another property, or a gift from a parent. If part of your deposit comes from a gift, you'll need a statutory declaration confirming the money doesn't need to be repaid.

Consider a teacher buying in regional Victoria at $550,000. With a 10% deposit of $55,000, you'd borrow $495,000 at a 90% LVR. Stamp duty for a first home buyer in Victoria is fully exempt on properties valued up to $600,000, which removes one of the major upfront costs. LMI at 90% LVR typically adds between $12,000 and $18,000 depending on the lender and your employment type. Some lenders reduce or waive LMI for teachers and other professionals, which can bring that figure down to zero. You can read more about LMI waivers for teachers if your occupation qualifies.

The Main Advantage: You Can Buy Sooner

Saving a 20% deposit takes years. A 10% deposit gets you into the market sooner, which matters if property values are rising or if you want to stop paying rent. You start building equity immediately rather than waiting another three or four years to reach a larger deposit.

If you're renting at $450 per week while saving, that's $23,400 per year going to a landlord. Over three years, you've paid $70,200 in rent with nothing to show for it. Buying sooner with a smaller deposit means those payments go toward your own mortgage instead. The trade-off is the cost of LMI, but if property values increase during the time you would have spent saving, the equity gain often exceeds the insurance premium.

LMI Adds to Your Upfront Cost

Lenders Mortgage Insurance protects the lender if you default on the loan. It doesn't protect you. The premium is calculated based on your loan amount and LVR, and it's a one-off cost that you can either pay upfront or capitalise into the loan. At 90% LVR, LMI typically ranges from $12,000 to $20,000 depending on the purchase price and lender.

If you capitalise the premium, your loan amount increases and you pay interest on that added amount over the life of the loan. A capitalised LMI premium of $15,000 at a variable rate costs you roughly $30,000 in interest over 30 years. That's the real cost, not just the premium itself. Some lenders waive LMI for teachers purchasing with a 10% deposit, which removes this cost entirely. You can explore mortgages for teachers to see which lenders offer that option.

Your Borrowing Power Shrinks Slightly

Lenders assess your borrowing capacity using a serviceability buffer of 3% above the actual interest rate. At a variable rate, the lender tests whether you can still afford repayments if the rate climbs by three percentage points. A higher loan amount at 90% LVR reduces your borrowing power slightly compared to an 80% LVR loan, because the repayments are higher and the buffer calculation is tighter.

In a scenario where a teacher earns $85,000 per year with no other debts, borrowing capacity at 90% LVR might sit around $540,000, while borrowing capacity at 80% LVR might reach $560,000. The difference isn't huge, but it matters if you're at the upper limit of what you can afford. Some lenders apply a higher interest rate margin to loans above 80% LVR, which also affects serviceability. Getting loan pre-approval early helps you understand exactly what you can borrow before you start looking at properties.

You Qualify for the Australian Government 5% Deposit Scheme

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit, with Housing Australia guaranteeing up to 15% of the property value. That brings your combined deposit and guarantee to 20%, which means you avoid paying LMI. If you're putting down 10%, you already exceed the minimum deposit requirement for the scheme, which gives you more flexibility in how you structure your deposit.

Property price caps apply. In regional Victoria, the cap is $650,000 in areas outside Geelong. In Tasmania, the cap is $700,000 in Hobart and $550,000 elsewhere. The scheme is available through participating lenders only, and you can't apply directly to Housing Australia. Not all lenders on the panel offer the same loan features, so comparing your options matters. You can also combine the scheme with state stamp duty concessions, though you can't use it alongside Help to Buy.

Interest Rates May Be Slightly Higher

Some lenders charge a small rate premium on loans above 80% LVR. The margin might be 0.10% to 0.25% higher than the standard variable rate for an 80% LVR loan. Not all lenders apply this loading, and it's often negotiable depending on your employment type and credit profile.

On a $500,000 loan, a 0.20% rate increase adds roughly $1,000 per year to your repayments. Over five years, that's $5,000. If you're eligible for an LMI waiver or a lower rate through a mortgage broker for teachers, that rate loading may not apply at all. It's worth asking your lender or broker whether the rate you're quoted includes any LVR-based adjustment.

You'll Build Equity Slower at First

A higher loan amount means more of your repayment goes toward interest in the early years. At 90% LVR, you're paying interest on a larger balance, which slows the rate at which you build equity. Over the first five years, the difference in equity between an 80% LVR loan and a 90% LVR loan might be $15,000 to $20,000, assuming no extra repayments and no property value growth.

If property values increase, that gap narrows quickly. If you make extra repayments, even small amounts, you reduce the principal faster and offset some of the slower equity build. A fortnightly repayment instead of monthly, or an extra $200 per month, makes a noticeable difference over time.

Refinancing to Remove LMI Is Possible Once You Hit 80% LVR

Once your LVR drops to 80% through repayments or property value growth, you can refinance to access lower rates or remove any LVR-based rate loading. If you bought at $600,000 with a 90% LVR and the property is now valued at $650,000, your LVR has dropped below 80% even without making extra repayments. At that point, refinancing gives you access to standard rates and features without the LVR restriction.

Refinancing also lets you switch lenders if a better rate or offset account is available elsewhere. Some lenders restrict offset accounts or redraw facilities on loans above 80% LVR, so refinancing once you reach that threshold opens up more home loan features that weren't available at purchase.

A 10% deposit gets you into property sooner, but the real cost depends on whether you're paying LMI and what rate you're offered. If your occupation qualifies for an LMI waiver and you're eligible for state concessions, a 10% deposit can be a smart move. If you're paying full LMI and a higher rate, the trade-off is less appealing unless property values are rising quickly. Call one of our team or book an appointment at a time that works for you.

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