The deposit you bring to a property purchase determines more than just how much you borrow. It affects your interest rate, your access to lenders, whether you pay Lenders Mortgage Insurance, and how quickly you can move from application to settlement.
For buyers in Ringwood, where the market includes everything from older weatherboard homes near the station through to renovated family homes in the leafy streets around Ringwood Lake, deposit size shapes which properties remain within reach and which lenders will compete for your application.
How Deposit Size Affects Your Loan Terms
Your deposit determines your loan to value ratio, which is the percentage of the property price you need to borrow. A 20% deposit keeps your LVR at 80% and typically unlocks lower interest rates, broader lender options, and no requirement to pay LMI. Anything below 20% increases your LVR and changes the terms available to you.
Consider a buyer purchasing in one of the established pockets near Eastland. With a 20% deposit, they can access standard variable or fixed rate products from most lenders, often with rate discounts that reflect the lower risk profile. The same buyer with a 10% deposit will face a smaller panel of willing lenders, higher interest rates, and an LMI premium that could add several thousand dollars to their upfront costs or be capitalised into the loan amount.
The difference in interest rate between an 80% LVR and a 90% LVR loan can be 0.20% to 0.40%, depending on the lender. Over the life of a loan, that margin compounds. LMI at 90% LVR typically costs between 2% and 4% of the loan amount, depending on the insurer and your circumstances.
The 5% Deposit Option and What It Actually Costs
You can apply for a home loan with as little as a 5% deposit, but the cost of doing so is significant. At 95% LVR, LMI premiums are at their highest, interest rates are less competitive, and the number of lenders willing to assess your application drops sharply.
In our experience, buyers in Ringwood who proceed with a 5% deposit often do so because waiting another year or two to save more would mean missing a specific opportunity, such as a property near family or within a preferred school zone. The question is whether the additional cost of LMI and higher repayments outweighs the benefit of entering the market sooner.
For first home buyers, the First Home Loan Guarantee Scheme allows eligible applicants to purchase with a 5% deposit without paying LMI, provided they meet income and property price caps. This can make a 5% deposit viable without the same financial penalty, but availability is limited and competition for places is high.
Genuine Savings vs Non-Genuine Savings
Most lenders require that your deposit includes genuine savings, which refers to funds you have accumulated over time in your own accounts. Genuine savings are typically defined as funds held in your account for at least three months, and most lenders want to see at least 5% of the property price come from this source.
Non-genuine savings include gifts from family, sale proceeds from assets like cars, tax refunds, or bonuses. These can form part of your deposit, but lenders will usually still require a portion to be genuine savings. If your entire deposit comes from non-genuine sources, your options narrow and some lenders will decline the application outright.
Consider a scenario where a buyer in Ringwood receives a $30,000 gift from parents and has $15,000 in savings. Most lenders will accept this combination for a 10% deposit, provided the $15,000 meets the three-month requirement. If the buyer had only the gift and no demonstrated savings history, they would likely need to wait or provide additional evidence of their ability to service the loan, such as a strong rental payment history.
Savings Outside Super That Lenders Will Accept
Beyond standard savings accounts, lenders will consider term deposits, shares, and managed funds as part of your deposit. These are treated as genuine savings if held for the required period. The key is demonstrating that you have accumulated and retained funds over time, rather than received a windfall shortly before applying.
Some lenders will also accept the equity in an existing property, which is common for buyers upgrading from a smaller home or investors purchasing a second property. This bypasses the need for cash savings, but the assessment shifts to whether you can service both loans and whether the equity position is sufficient to avoid LMI on the new purchase.
How Offset Accounts Help You Build Equity Faster
Once you have purchased, the way you structure your loan affects how quickly you reduce the principal and build equity. A linked offset account allows you to park your salary and savings in a transaction account that offsets the balance of your home loan, reducing the interest charged without locking your funds away.
For buyers in Ringwood who have entered the market with a smaller deposit and want to reach 80% LVR as quickly as possible to refinance out of LMI, an offset account is one of the most effective tools. Every dollar in the offset reduces the interest calculation, which means more of each repayment goes toward the principal.
Not all home loan products include a full offset account, and some lenders charge a higher interest rate for loans that do. The decision depends on whether you will maintain a meaningful balance in the offset. If your offset account consistently holds several thousand dollars, the interest saved will outweigh the slightly higher rate. If it sits empty, you are paying for a feature you are not using.
The Impact of Rate Type on Deposit Strategy
Whether you choose a variable rate, fixed rate, or split loan does not directly change your deposit requirement, but it does affect your repayment stability and your ability to make extra payments. A fixed interest rate home loan provides certainty over repayments for the fixed period, which can help buyers who have stretched their deposit and need predictable costs.
A variable rate home loan typically offers more flexibility for additional repayments and access to features like offset accounts and redraws. For buyers who have entered the market with a 10% deposit and want to accelerate their equity position, a variable rate loan with an offset is usually the better structure.
Some buyers in Ringwood opt for a split loan, fixing a portion for stability and leaving the rest variable for flexibility. This approach works when you want to protect against rate rises but still retain the ability to make extra repayments or use an offset on the variable portion. You can compare the trade-offs in more detail through a home loan rates comparison tailored to your situation.
When to Wait and When to Proceed with a Smaller Deposit
Waiting to save a larger deposit reduces your borrowing costs and improves your loan terms, but it also delays your entry into the market. If property prices are rising faster than you can save, waiting may cost more in lost equity than you save in LMI and interest.
The calculation depends on your circumstances. If you are currently paying rent that exceeds what your mortgage repayments would be, and you can secure a loan with a 10% deposit at a manageable rate, proceeding sooner may be the right choice. If you are living at home or in low-cost accommodation and can save an additional 5% to 10% within 12 months, waiting will likely save you more in the long term.
For buyers in Ringwood, the decision also depends on what you are trying to purchase. If you are targeting an established home in a tightly held area where stock is limited, waiting may mean missing the right property. If you are open to a wider range of locations or property types, waiting to build a larger deposit gives you more negotiating power and access to better loan products.
Call one of our team or book an appointment at a time that works for you. We can review your savings position, run the numbers on LMI and repayment scenarios, and help you decide whether proceeding now or waiting another few months makes more sense for your situation.
Frequently Asked Questions
What deposit do I need to avoid paying Lenders Mortgage Insurance?
You need a 20% deposit to avoid LMI, which keeps your loan to value ratio at 80%. Anything below 20% will typically require LMI, unless you qualify for a government guarantee scheme.
Can I use a gift from family as part of my deposit?
Yes, most lenders accept gifts as part of your deposit, but they usually require at least 5% of the property price to come from genuine savings that you have held for at least three months. The gift can supplement this but not replace it entirely.
What is the difference between genuine and non-genuine savings?
Genuine savings are funds you have accumulated and held in your account for at least three months, such as salary savings. Non-genuine savings include gifts, tax refunds, or asset sale proceeds that have appeared in your account recently.
How does an offset account help after I purchase?
An offset account reduces the interest charged on your loan by offsetting your savings balance against the loan principal. This allows you to build equity faster without locking your funds away, which is particularly useful for buyers who started with a smaller deposit.
Should I wait to save a larger deposit or buy sooner with less?
It depends on your rental costs, savings rate, and property price movements. If rent is high and prices are rising, buying sooner with 10% may be better. If you can save quickly and prices are stable, waiting for 20% will save you money on LMI and interest.
