The 20% deposit is the traditional advice. The 5% pathway is how a growing share of Sydney first home buyers actually purchase. Neither is automatically right, and the interesting question is not which is cheaper on a spreadsheet, it is which risk you would rather hold: the market’s, or the loan’s.

What is the case for buying at 5%?

Time is the argument. The gap between a 5% and 20% deposit on a Sydney-priced home is measured in years of saving for most households, do your own version: the difference between the two deposits, divided by your monthly savings rate, is your waiting time in months. While you save, the market does not wait: if prices rise, the 20% target moves away from you, and you pay the higher price at the end anyway. If prices fall, waiting wins, nobody knows in advance which market you will get, which is precisely the risk you hold while renting and saving.

Under the government scheme there is no LMI at 5%, which removes the traditional cost penalty of the small deposit. What remains is the structural difference: a bigger loan.

What is the case for waiting for 20%?

The loan is the argument. A 95% loan on the same property means visibly higher repayments every month for years, run both in the repayments calculator and look at the monthly gap honestly. It also means starting with a sliver of equity: if prices dip early, a 95% borrower can owe close to what the home is worth, which matters if life forces a sale at the wrong moment. The 20% buyer starts with a real buffer, broader lender choice, and often sharper pricing.

What comparison do people skip?

The honest comparison is not "5% now" against "20% now", it is "5% now" against "20% in several years, at whatever prices then prevail, minus years of rent, plus years of your home’s growth or decline". That comparison has an unknowable term in it, future prices, which is why the decision is ultimately about risk temperament as much as arithmetic:

  • Buying at 5% concentrates your risk in the loan: higher repayments, thin early equity, more exposure if you must sell early.
  • Waiting for 20% concentrates your risk in the market: prices and rents moving while you save, with the target drifting.

What are the middle paths?

This is not a binary. A 10–12% deposit with modest LMI, a family gift topping 5% towards 20%, a guarantor structure reaching 20%-equivalent without the cash, or the FHSS accelerating the saving itself, each shifts the trade-off rather than picking a side of it.

How do you decide?

  • Price both monthly positions: the 5% repayment and the 20% repayment, with your buffer of choice on top.
  • Price the wait: your honest monthly savings rate against the deposit gap, in months and years.
  • Check the caps: the scheme’s $1.5m Sydney cap and the duty thresholds shape which pathways your target price allows, the deposit calculator runs the comparison directly.
  • Then choose the risk you can live with, and stop relitigating it.

How do 5% and 20% compare at $800,000?

An illustration makes the trade-off concrete. At $800,000, the 5% buyer puts down $40,000 and borrows $760,000. The 20% buyer puts down $160,000 and borrows $640,000. At an illustrative 6% interest rate over 30 years, the first loan costs about $4,560 a month and the second about $3,840, a gap of roughly $720 a month that persists for years. Over the first five years that gap adds up to more than $40,000 in higher repayments, most of it interest on the extra $120,000 borrowed. That is the real, recurring cost of the small deposit, and it deserves to be stated plainly rather than waved away.

The other side of the ledger is the $120,000 the 20% buyer had to find first. At a savings rate of $2,000 a month, which is a serious effort for most households, the extra deposit takes five years to accumulate. At $3,000 a month it takes just over three years. During those years the 5% buyer has been paying a mortgage instead of rent, building equity and holding whatever the market has done, up or down. Which position ends up ahead depends on prices over that period, and nobody knows those in advance.

What changes outside the scheme?

The comparison above assumes the 5% buyer is inside the government scheme and pays no lenders mortgage insurance. Outside the scheme, a 95% loan attracts a substantial LMI premium that is usually added to the loan, increasing both the balance and the repayment, and fewer lenders will write it. That changes the arithmetic materially, which is why the scheme is the first thing to check. For buyers above the Sydney price cap or outside the scheme for another reason, a 10% to 15% deposit with a smaller LMI premium is often the practical middle, and our low deposit home loans page sets out the options at each level. Some professions can have LMI waived at higher loan-to-value ratios, covered in the LMI waiver guide.

What is the risk of selling early?

The quieter difference between the two positions is what happens if life forces a sale within the first few years. The 20% buyer has a cushion: a modest fall in prices still leaves them with equity after selling costs. The 95% borrower who sells into a soft market can find that the sale proceeds do not clear the loan and the agent’s commission, leaving a shortfall to fund from savings. This is not an argument against buying with 5%; it is an argument for buying with 5% when you are confident you will hold the property for long enough for the equity to build, which for most first home buyers is the plan anyway.

Which uncertainty would you rather carry?

Strip away the arithmetic and the decision comes down to one question: which uncertainty would you rather carry? The 5% buyer carries the loan’s uncertainty. Rates can rise, and on a larger balance each rise costs more; equity is thin for the first few years, so an early sale in a soft market is the scenario to avoid. The 20% saver carries the market’s uncertainty. Prices can move while they save, the target can drift, rent continues, and the reward for patience only arrives if prices are flat or falling when they finally buy. Neither position is imprudent. What is imprudent is holding one of them without having noticed that you chose it, which is what a default to “save 20%” or a default to “buy now” both amount to. Decide it with your own numbers, write down why, and then let the decision rest.

Questions people ask

Does a 5% deposit mean a higher interest rate?

Sometimes slightly, because lenders price some products by loan-to-value ratio, and the sharpest rates are often reserved for loans under 80%. The difference is usually modest, and inside the scheme many lenders apply their standard rates. It is worth comparing, not assuming.

Can I start at 5% and get to 20% later?

Yes, through repayments and price growth, and that is how most small-deposit buyers end up in a strong position. Once the loan is below 80% of the property’s value, you can often refinance to sharper pricing, covered in the refinancing guide.

Is there a deposit size between 5% and 20% that makes sense?

Often. A 10% to 12% deposit outside the scheme keeps LMI modest and widens lender choice; inside the scheme, anything above 5% simply reduces the loan and the repayment. The deposit calculator shows the effect of each step.

The right answer is personal: prices in your target area, your savings rate, your patience, your sleep. Thirty minutes with Charles settles it with real numbers instead of internet folklore.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.