Guide · First home 5% deposit vs saving 20%: the numbers
Should you buy now with 5%, or keep saving for 20%? There’s no single right answer, but there are numbers. Here’s the same $850,000 Sydney home both ways: the cash, the loan, the repayments, and what waiting costs.
Key takeaways
- With 5%, the cash on the day is about $52,297 before fees. With 20%, it’s about $179,797.
- The 5% loan is $127,500 bigger: about $764 a month more at an illustrative 6%, and about $147,694 more interest over 30 years.
- Saving the extra $127,500 at $2,000 a month takes about 5 yrs 4 mths, with about $221,867 of rent at $800 a week meanwhile.
- Prices can move either way while you save. I don’t predict them, so the comparison here is only the costs you can measure.
The same home, two ways
An $850,000 established first home in Sydney. Eligible for the 5% Deposit Scheme and the NSW first home duty concession.
| Buy now with 5% | Save to 20% first | |
|---|---|---|
| Deposit | $42,500 | $170,000 |
| Stamp duty | $9,797 | $9,797 |
| Cash needed before fees | $52,297 | $179,797 |
| Loan | $807,500 | $680,000 |
| Repayment at 6%, 30 years | $4,841/mo | $4,077/mo |
| Extra interest over 30 years | about $147,694 | — |
| Time to save the extra $127,500 | — | about 5 yrs 4 mths at $2,000/mo |
| Rent paid while saving | — | about $221,867 at $800/wk |
| Price when you buy | $850,000 | Unknown |
Illustrative rate and figures, not a quote or a comparison rate. Assumes the duty concession still applies when the 20% buyer is ready and the price hasn’t changed, which it may have. Excludes lender, legal and other costs.
What a 5% deposit costs you
A bigger loan. On these figures, $127,500 more borrowed means about $764 more a month and about $147,694 more interest if you kept the loan for 30 years. You also start with less equity, so there’s less room if prices dip in the first few years.
Paying extra when you can, or refinancing once your equity reaches 20%, can bring that interest down. I review my clients’ loans every six months for exactly that.
What saving 20% costs you
Time and rent. At $2,000 a month, closing the gap takes about 5 yrs 4 mths. At $800 a week, that’s about $221,867 of rent, which builds no equity.
And the target can move. If prices rise, 20% of a higher price is a bigger number. If they fall, waiting may have been the better call. I don’t predict prices, so I don’t build either outcome into your plan.
Who 5% tends to suit
- A good, stable income that covers the bigger repayment with room to spare.
- Eligible for the 5% Deposit Scheme, under the price cap.
- Paying high rent, so waiting costs a lot each month.
- Planning to stay in the home for years.
Who saving longer tends to suit
- Your income is new, uneven or about to change.
- The bigger repayment would leave no buffer.
- You may move cities or change plans in the next few years.
- You’re close to 20% already.
Either way, the decision is yours. My job is to put the real numbers in front of you first.
FAQ Questions clients ask
Is it better to buy with 5% or save 20%?
Neither is right for everyone. A 5% deposit gets you in years sooner but means a bigger loan and more interest. Saving 20% means a smaller loan, but years more rent and the risk that prices or your plans change. The numbers on this page set out both sides for an $850,000 home.
Do I pay lenders mortgage insurance with a 5% deposit?
Not under the 5% Deposit Scheme, if you’re eligible and keep meeting its rules. Outside the scheme, a 5% deposit usually means lenders mortgage insurance, which can add thousands to the loan. That’s why I check the scheme first.
How long does it take to save a 20% deposit?
It depends on what you can save. On an $850,000 home, the gap between 5% and 20% is $127,500. At $2,000 a month, that’s about 5 yrs 4 mths, before any change in prices.
Will house prices go up while I save?
Nobody knows, and I don’t predict prices. If prices rise while you save, the 20% target moves with them. If they fall, waiting may pay off. The safer comparison is the cost you can measure: rent, interest and time.
Are my repayments much higher with 5%?
At an illustrative 6% over 30 years, repayments on an $850,000 home are about $4,841 a month with 5% down and $4,077 with 20%. That’s about $764 a month more.
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