Updated: November 2026
Your deposit affects more than the amount you need to borrow. It also determines your loan-to-value ratio (LVR), which lenders may use when assessing risk, home loan eligibility, interest-rate options and whether Lenders Mortgage Insurance (LMI) applies.
A larger deposit can reduce the home loan and LVR. This may provide access to more lenders or more competitive pricing, but a lower interest rate is not guaranteed. Home loan pricing also depends on the lender, loan purpose, repayment type, product, property and the applicant’s overall financial position.
If you are preparing to buy your first property, our First Home Buyer home loan service explains how CBM Mortgages can help you assess your deposit, borrowing capacity and suitable home loan options.
What is loan-to-value ratio?
Loan-to-value ratio measures the home loan as a percentage of the property’s value.
The basic calculation is:
Home loan amount ÷ property value × 100 = LVR
For example:
| Purchase component | Example amount |
|---|---|
| Property value | $800,000 |
| Deposit | $160,000 |
| Home loan | $640,000 |
| LVR | 80% |
The calculation uses the value accepted by the lender. If the lender’s valuation is lower than the agreed purchase price, the buyer may need a larger contribution to maintain the intended LVR.
MoneySmart defines LVR as the loan amount expressed as a percentage of the value of the asset used as security.
How does deposit size change the LVR?
A larger deposit generally produces a smaller home loan and lower LVR.
| Deposit on an $800,000 property | Indicative home loan | Indicative LVR |
|---|---|---|
| $40,000 or 5% | $760,000 | 95% |
| $80,000 or 10% | $720,000 | 90% |
| $160,000 or 20% | $640,000 | 80% |
| $240,000 or 30% | $560,000 | 70% |
These examples exclude transfer duty, legal fees, inspections, settlement adjustments and other purchase costs. Using part of the deposit to pay those costs may increase the home loan or LVR.
Can a larger deposit lead to a lower interest rate?
Potentially. Some lenders price home loans according to LVR bands. A borrower with a lower LVR may have access to different products or pricing than a borrower seeking a higher-LVR home loan.
Common pricing bands may include:
- 60% LVR or below;
- above 60% and up to 70%;
- above 70% and up to 80%;
- above 80% and up to 90%; and
- above 90%.
The exact bands and pricing vary between lenders and can change. Not every lender offers its lowest rate at the same LVR, and moving into a lower band does not automatically guarantee a lower rate.
Interest-rate pricing can also depend on:
- whether the property will be owner-occupied or used as an investment;
- principal-and-interest or interest-only repayments;
- fixed, variable or split-rate selection;
- the loan amount and term;
- the property type and location;
- the borrower’s income, debts, expenses and credit history;
- professional or lender-specific policy exemptions; and
- the features included with the home loan.
The comparison should therefore cover the complete loan cost, not only the advertised interest rate.
Why small interest-rate differences matter
A home loan is a long-term debt. Even a modest rate difference can materially affect repayments and total interest over the loan term.
For example, a difference of 0.20 percentage points on a large home loan can add up over many years. The actual effect depends on the loan balance, repayment type, term and future rate changes.
When comparing loans, consider:
- the advertised interest rate;
- the comparison rate;
- application and ongoing fees;
- offset-account or redraw costs;
- cashback conditions, if any;
- fixed-rate break costs;
- repayment flexibility; and
- the total estimated cost over the expected holding period.
The MoneySmart home loan guide explains why comparing rates, fees, features and flexibility is important.
How deposit size affects Lenders Mortgage Insurance
LMI protects the lender if the borrower cannot repay the home loan. It does not protect the borrower.
LMI will commonly apply when the home loan exceeds 80% of the lender’s accepted property value, although requirements vary between lenders and loan structures.
LMI may be:
- paid as an upfront purchase cost;
- added to the home loan, subject to lender approval; or
- reduced or avoided through an eligible lender, professional policy or government-backed pathway.
Adding LMI to the loan increases the amount borrowed and can increase both repayments and total interest.
MoneySmart notes that a bigger deposit may help a buyer borrow less and avoid additional charges such as LMI.
What if the buyer has less than a 20% deposit?
A 20% deposit is not mandatory for every home loan. Some lenders may approve eligible borrowers with a smaller deposit.
Possible pathways include:
- paying LMI;
- using the Australian Government 5% Deposit Scheme if eligible;
- using an acceptable family guarantee;
- accessing a lender or professional LMI policy where available; or
- purchasing a lower-priced property to reduce the required loan.
Each option involves different eligibility rules, costs and risks.
Our guide to saving a deposit for your first home compares several deposit pathways.
Australian Government 5% Deposit Scheme
The Australian Government 5% Deposit Scheme may allow eligible first home buyers to purchase with a minimum 5% deposit without paying LMI.
Housing Australia provides a guarantee to an authorised participating lender. The guarantee does not reduce the amount borrowed and does not mean the Australian Government owns part of the property.
The scheme currently has no income caps, no waiting list and unlimited places. Buyers must still satisfy:
- the scheme’s personal eligibility requirements;
- the applicable location property-price cap;
- the owner-occupier requirements;
- the participating lender’s credit policy; and
- the participating lender’s home loan approval criteria.
Check the current rules through the official Australian Government 5% Deposit Scheme website.
Read our detailed guide to the Australian Government 5% Deposit Scheme.
Does a lower LVR improve loan approval prospects?
A lower LVR can reduce the lender’s security risk and may improve the range of available home loan options. However, the deposit is only one part of a home loan assessment.
A lender will also consider:
- income and employment;
- existing home loans, personal loans and car finance;
- credit-card limits;
- HELP debt;
- household and discretionary expenses;
- credit history;
- repayment capacity under the lender’s assessment rate;
- the property’s location, condition and suitability as security; and
- the source and history of the deposit.
A large deposit does not compensate automatically for insufficient borrowing capacity, an unsuitable property or a poor credit position.
What is genuine savings?
Some lenders require part of a smaller deposit to be demonstrated as genuine savings.
Depending on the lender, acceptable genuine savings may include money held in an account over a required period, eligible investments, term deposits or equity built in another property.
Gifts, borrowed funds, sale proceeds and government grants may be treated differently between lenders. Buyers should confirm the lender’s genuine-savings requirements before paying a non-refundable deposit or exchanging contracts.
How LVR works when refinancing
When refinancing, the deposit is replaced by the equity held in the property.
Equity is broadly the difference between the property’s value and the outstanding home loan balance. The refinancing lender will generally use its own accepted valuation when calculating the LVR.
For example:
| Refinancing component | Example amount |
|---|---|
| Lender-accepted property value | $1,000,000 |
| Proposed refinanced home loan | $700,000 |
| Indicative equity | $300,000 |
| Indicative LVR | 70% |
A lower refinancing LVR may produce access to more competitive products, but borrowers should also compare:
- discharge and application costs;
- valuation or settlement fees;
- fixed-rate break costs where relevant;
- the remaining loan term;
- features that may be lost or gained; and
- the time required to recover switching costs.
Should buyers wait until they have a 20% deposit?
There is no single answer. Waiting may reduce the home loan, LVR, repayments and possible LMI cost. However, waiting also delays the purchase and does not guarantee that suitable property prices, interest rates or personal circumstances will remain unchanged.
A useful comparison should examine at least three scenarios:
- buying now with the available deposit and applicable costs;
- waiting until the deposit reaches 20%; and
- using an eligible government or family-supported pathway.
Compare the likely home loan, repayment, LMI, interest cost, financial buffer and risks under each scenario.
How CBM Mortgages can help
CBM Mortgages can help you understand how the deposit and LVR may affect available home loan options.
We can help you:
- calculate the indicative LVR;
- compare home loans across relevant LVR bands;
- estimate repayments and total borrowing;
- review possible LMI costs or exemptions;
- compare eligible participating lenders under the 5% Deposit Scheme;
- assess how existing debts may affect borrowing capacity; and
- prepare for pre-approval and the property search.
Lenders determine their own credit policy, valuations, interest rates and approval decisions. CBM Mortgages can compare suitable options and explain the trade-offs before an application is submitted.
Want to understand how your deposit could affect your home loan? Visit our First Home Buyer home loan service or contact CBM Mortgages to discuss your deposit, LVR and borrowing position.
Frequently asked questions
Ready to plan your first home purchase?
CBM Mortgages can help you understand your deposit, loan-to-value ratio, borrowing position and suitable home loan options before you apply.
Disclaimer: This article provides general information only and does not constitute personal financial, legal, tax or credit advice. Lender policies, valuations, interest rates, LMI requirements and government-scheme rules can change. Consider obtaining advice appropriate to your circumstances before acting.
