The deposit you bring determines not just whether you secure a home loan, but what that loan costs you.
For professionals building wealth through property, deposit size directly influences your interest rate, Lenders Mortgage Insurance (LMI) exposure, and borrowing capacity across multiple assets. A larger deposit unlocks lower rates and reduced total borrowing costs. A smaller deposit triggers LMI and limits your ability to expand your portfolio quickly.
The 20% Threshold and What It Unlocks
Lenders typically require 20% of the property value as a deposit to avoid LMI, an insurance premium that protects the lender if you default. Below that threshold, you pay LMI on top of your loan amount, adding thousands to your upfront costs.
Consider a professional purchasing an investment property in Nedlands at $900,000. A 20% deposit of $180,000 eliminates LMI entirely. With a 10% deposit of $90,000, LMI could add $18,000 to $25,000 depending on your loan profile. That capital moves from your pocket to an insurance premium with no ongoing benefit to you. For wealth-focused buyers, every dollar diverted to LMI is a dollar not working in your portfolio.
The loan to value ratio (LVR) dictates lender appetite. At 80% LVR, you access the broadest range of lenders and rate discounts. At 90% LVR, your options narrow and pricing increases. At 95% LVR, only certain lenders participate and conditions tighten further.
Using Equity from Existing Property
You do not need cash savings to fund a deposit. Equity in your owner occupied home loan or existing investment property can substitute for savings when expanding your portfolio.
In a scenario where you own a property in South Perth worth $1.2 million with a remaining loan balance of $400,000, you hold $800,000 in equity. Lenders typically allow you to borrow against 80% of that property's value, which is $960,000. Subtracting your existing loan leaves $560,000 in usable equity. That figure funds your next deposit without liquidating other assets or delaying your timeline.
This approach accelerates portfolio growth but increases exposure across multiple properties. If one property underperforms or interest rates rise, your repayment obligations span your entire portfolio. Professionals using equity to fund deposits should model their repayment capacity under higher variable interest rate scenarios before committing.
Deposit Sources That Lenders Accept
Lenders classify deposits as genuine savings or non-genuine savings. Genuine savings include funds held in your account for at least three months, demonstrating consistent financial behaviour. Non-genuine savings include gifts from family, proceeds from asset sales, or inheritances.
Most lenders accept both, but some impose stricter conditions on non-genuine savings, particularly at higher LVRs. A professional applying for a home loan with a 10% deposit funded entirely by a family gift may face additional scrutiny or reduced access to certain home loan products compared to someone with 10% saved over 12 months.
Bonus payments, tax refunds, and sale proceeds from shares or other investments count as genuine savings if held for the required period. If you receive a substantial bonus and plan to use it as a deposit, parking it in an offset account linked to your existing loan for three months satisfies lender requirements while reducing interest on your current debt.
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When Lower Deposits Make Strategic Sense
A smaller deposit is not always a disadvantage. Professionals with strong income and long investment horizons may accept LMI to enter the market sooner or preserve liquidity for other opportunities.
Take a professional earning $180,000 annually who identifies an investment opportunity in Subiaco at $750,000. They hold $100,000 in savings but also see potential in expanding their business or purchasing equipment. Deploying $150,000 as a 20% deposit eliminates LMI but drains accessible capital. Deploying $75,000 as a 10% deposit triggers $15,000 in LMI but keeps $75,000 available for other strategic moves.
If property values in that suburb increase by 6% annually, the equity gain from entering 12 months earlier often exceeds the cost of LMI. The calculation depends on your alternative use for that capital and your confidence in the asset's performance.
Some lenders also allow LMI to be capitalised into the loan amount rather than paid upfront, spreading the cost over the loan term. This reduces immediate cash outlay but increases your total loan size and interest paid over time.
How Deposit Size Affects Rate Discounts
Lenders price risk. A larger deposit signals lower risk, which translates to better pricing. The difference between an 80% LVR and a 90% LVR can shift your variable interest rate by 0.15% to 0.30%, depending on the lender and your profile.
On a $720,000 loan, a 0.20% rate difference costs roughly $1,440 annually. Over a five-year period, that gap widens to $7,200 before compounding effects. Professionals comparing home loan rates should assess not just the advertised rate but the rate available at their specific LVR.
Some lenders also offer professional packages with enhanced rate discounts for lawyers, doctors, and accountants, but these discounts often apply only at lower LVRs. A professional with a 10% deposit may not access the same pricing as a professional with a 20% deposit, even within the same lender's professional program. Understanding where your deposit sits relative to lender pricing tiers clarifies your true cost of borrowing.
Building Deposit Size Without Delaying Entry
Professionals torn between saving a larger deposit and entering the market sooner can structure their approach to achieve both. Purchasing a lower-priced property or targeting a less expensive suburb allows you to meet the 20% threshold faster while still building equity.
Another method involves using a guarantor, typically a parent, who offers their property as additional security. This reduces your effective LVR without requiring a larger cash deposit. The guarantor's exposure is limited to the shortfall amount, not the entire loan, and can be removed once you build sufficient equity through repayments or capital growth. This option suits professionals with high income but limited savings history, particularly those early in their careers.
Refinancing after property values increase also removes LMI and improves your rate. If you purchase at 90% LVR and the property appreciates 10% within two years, you may refinance at 80% LVR without injecting additional capital. Monitoring your investment loans for opportunities to refinance as your equity position improves keeps your portfolio cost-efficient.
Deposit Structures for Multiple Properties
Expanding into a second or third investment property changes how you structure deposits. Lenders assess your total debt position, not just the individual loan. Your ability to service multiple loans depends on your income, existing commitments, and the rental yield from investment properties.
Professionals holding a principal and interest loan on their primary residence and considering a second property often convert their existing loan to interest only, reducing repayments and improving serviceability for the new purchase. This frees up cash flow without selling assets or increasing deposit size. However, interest only loans delay equity accumulation and may carry slightly higher rates, particularly on owner occupied loans.
Another structure involves splitting your loans across multiple lenders to manage LVR and maintain access to future borrowing. If one lender holds 80% LVR on your first property and another holds 80% LVR on your second, neither lender views your total position as over-leveraged. Cross-collateralising all properties with a single lender simplifies administration but limits future flexibility if one property underperforms or you need to sell.
Call one of our team or book an appointment at a time that works for you. We work with professionals across Perth, including Nedlands, Subiaco, and South Perth, to structure deposits and loans that align with your wealth strategy.
Frequently Asked Questions
What deposit do I need to avoid Lenders Mortgage Insurance?
A deposit of 20% or more typically avoids LMI. Below that threshold, lenders charge LMI to protect themselves against default risk, adding thousands to your upfront costs depending on your loan size and LVR.
Can I use equity from my home instead of cash savings for a deposit?
Yes, equity in an existing property can fund your deposit for additional purchases. Lenders usually allow borrowing up to 80% of your property's value, and the difference between that amount and your current loan becomes usable equity.
How does deposit size affect my interest rate?
Larger deposits result in lower LVRs, which signal lower risk to lenders and unlock better pricing. The rate difference between 80% LVR and 90% LVR can be 0.15% to 0.30%, costing thousands over the loan term.
Do lenders accept gifts from family as part of my deposit?
Most lenders accept family gifts, but they classify them as non-genuine savings. Some lenders impose stricter conditions on non-genuine savings, particularly at higher LVRs, compared to funds held in your account for at least three months.
Is paying LMI ever a better option than waiting to save a larger deposit?
Yes, if entering the market sooner allows you to capture capital growth or preserve liquidity for other opportunities. The cost of LMI may be outweighed by equity gains if property values increase while you would otherwise be saving.
