Preparing financially
Mortgage readiness: deposit, LMI and the buffer
What your deposit does to the loan, when lenders mortgage insurance may apply, the rate a bank tests your repayments at, and the government deposit schemes, with the arithmetic.
Key points
- Above an LVR of 80% (a deposit under 20%) you may need to pay lenders mortgage insurance.
- Banks test repayments at least 3 percentage points above the loan's rate; APRA kept the buffer at 3 points in May 2026.
- At August 2026's average rate of 6.15%, $600,000 over 30 years is $3,655 a month; the bank tests $4,893.
- The 5% Deposit Scheme lets eligible first home buyers buy with 5% and no LMI, within price caps.
The short answer
Three things to check before you apply. The first is your deposit as a share of the price: it sets the loan-to-value ratio (LVR), and above an LVR of 80% you may need to pay lenders mortgage insurance (LMI). (ASIC (Moneysmart), verified 22 Oct 2026) The second is whether you could still make the repayments at an interest rate 3 percentage points above the loan's rate, which is the test banks apply to a new loan. (Australian Prudential Regulation Authority, verified 22 Oct 2026) (Australian Prudential Regulation Authority, verified 22 Oct 2026) The third is whether a government deposit scheme applies to you. (Housing Australia, verified 22 Oct 2026)
For scale: the average rate on new owner-occupier principal-and-interest loans was 6.15% in August 2026. (Reserve Bank of Australia, verified 22 Oct 2026) At that rate a $600,000 loan over 30 years is $3,655 a month. The bank tests whether you could pay $4,893, the repayment at 9.15%. (Australian Prudential Regulation Authority, verified 22 Oct 2026)
General information only, not credit or financial advice. It doesn't take your income, expenses, debts or goals into account, and it isn't an offer or an assessment of what any lender would approve. A lender, or a licensed mortgage broker, makes that assessment.
Deposit, LVR and LMI
Lenders call the size of your loan compared with the property's value the loan-to-value ratio: borrowing $450,000 to buy a $600,000 home is an LVR of 75%. The lower your LVR, the lower your costs and the better your chance of approval. Some lenders may accept a deposit as little as 5%. (ASIC (Moneysmart), verified 22 Oct 2026)
Scroll sideways for more columns
| Price | Deposit | Deposit amount | Loan | LVR | LMI may apply? |
|---|---|---|---|---|---|
| $600,000 | 5% | $30,000 | $570,000 | 95% | Yes, above 80% |
| $600,000 | 10% | $60,000 | $540,000 | 90% | Yes, above 80% |
| $600,000 | 20% | $120,000 | $480,000 | 80% | No |
| $800,000 | 5% | $40,000 | $760,000 | 95% | Yes, above 80% |
| $800,000 | 10% | $80,000 | $720,000 | 90% | Yes, above 80% |
| $800,000 | 20% | $160,000 | $640,000 | 80% | No |
| $1,000,000 | 5% | $50,000 | $950,000 | 95% | Yes, above 80% |
| $1,000,000 | 10% | $100,000 | $900,000 | 90% | Yes, above 80% |
| $1,000,000 | 20% | $200,000 | $800,000 | 80% | No |
If your LVR is above 80%, you may need to pay LMI. It is a one-off fee that protects the lender if you can't repay the loan, not you or your guarantor, and you pay it at settlement or the lender adds it to your loan. (ASIC (Moneysmart), verified 22 Oct 2026) Delora doesn't estimate LMI premiums; ask the lender or broker for a quote at your own LVR and loan size, and read lenders mortgage insurance explained for how it works.
The table is price minus deposit only. Stamp duty, legal fees and the other costs of buying come on top of the deposit, and an LMI premium added to the loan raises the LVR: see complete buying costs.
How a bank tests whether you can repay
Banks use a serviceability buffer to test borrowers' capacity to repay: they assess a new loan at an interest rate at least 3 percentage points above the loan's rate. APRA says the buffer is a contingency for rises in interest rates over the life of the loan and for unforeseen changes in a borrower's income or expenses. (Australian Prudential Regulation Authority, verified 22 Oct 2026) In May 2026 APRA announced that the buffer will remain at 3 percentage points. (Australian Prudential Regulation Authority, verified 22 Oct 2026)
| Rate | Monthly repayment on $600,000 | |
|---|---|---|
| The loan's rate (Aug 2026 average) | 6.15% | $3,655 |
| The rate the bank assesses | 9.15% | $4,893 |
| Difference | 3 points | $1,238 a month |
Moneysmart suggests the same check for your own budget: work out what your costs would be if interest rates went up by 3%. (ASIC (Moneysmart), verified 22 Oct 2026) The $1,238 a month above is that check on a $600,000 loan.
APRA also limits high debt-to-income (DTI) lending: banks can lend up to 20 per cent of new owner-occupied loans, and 20 per cent of new investment loans, at a DTI of six times or more. (Australian Prudential Regulation Authority, verified 22 Oct 2026) DTI is measured against before-tax income, and the limit caps a share of each bank's new lending; it is not a ceiling on any one application. (Australian Prudential Regulation Authority, verified 6 Oct 2026)
How lenders treat income, expenses and other debts is covered in how lenders calculate what you can borrow, and the borrowing power calculator applies the buffer to your own numbers.
Government deposit schemes
Under the Australian Government 5% Deposit Scheme, first home buyers with a minimum 5% deposit, or single parents and legal guardians with a minimum 2% deposit, can get a loan through a government guarantee to the lender. Since 1 October 2025 the scheme has no income caps, no waitlists and no lenders mortgage insurance. If the scheme's conditions aren't met, the guarantee may no longer apply and the lender may require LMI. (Housing Australia, verified 22 Oct 2026)
On a $600,000 home, a 5% deposit is $30,000 and the LVR is 95%, the row in the table above where LMI may apply outside the scheme. The price cap depends on where you buy, and you confirm it with a Participating Lender. (Housing Australia, verified 22 Oct 2026) Help to Buy needs a minimum 2% deposit from the buyer. (Housing Australia, verified 7 Oct 2026)
The first home buyer grants and schemes guide lists every state's price caps, duty relief and grant side by side. The 5% Deposit Scheme and Help to Buy guides cover eligibility in detail.
Repayments at a glance
Monthly principal-and-interest repayments over 30 years, at the August 2026 average rate and at the rate a bank would assess. (Reserve Bank of Australia, verified 22 Oct 2026) (Australian Prudential Regulation Authority, verified 22 Oct 2026)
| Loan | 6.15% (Aug 2026 average) | 9.15% (average + 3 points) |
|---|---|---|
| $400,000 | $2,437 | $3,262 |
| $500,000 | $3,046 | $4,077 |
| $600,000 | $3,655 | $4,893 |
| $750,000 | $4,569 | $6,116 |
| $1,000,000 | $6,092 | $8,154 |
The home loan repayment tables show every loan size at five rates, over 25 and 30 years, with the total interest.
Where to get advice
If you use a mortgage broker, check that they have a licence to give credit advice, or are a representative of a licensee, on the Credit Licensee and Credit Representative lists in ASIC's Professional Registers Search. Mortgage brokers must act in your best interests when suggesting a loan. (ASIC (Moneysmart), verified 22 Oct 2026) See working with a mortgage broker for the questions to ask.
Common questions
How much deposit do I need for a home loan?
Some lenders may accept a deposit as little as 5%. If the loan is more than 80% of the property's value (a deposit under 20%), you may need to pay lenders mortgage insurance. The 5% Deposit Scheme lets eligible first home buyers buy with a 5% deposit and no lenders mortgage insurance, within its price caps.
What is the APRA serviceability buffer?
The extra interest rate a bank adds when it tests whether you could repay a new home loan: at least 3 percentage points above the loan's rate. APRA said in May 2026 that it will remain at 3 percentage points.
What interest rate will a bank assess my loan at?
At least 3 percentage points above the loan's rate. At the August 2026 average of 6.15% for new owner-occupier principal-and-interest loans, that is 9.15%.
Who pays for lenders mortgage insurance, and who does it protect?
You pay it, at settlement or added to the loan, but it protects the lender if you can't repay, not you or your guarantor.
Practical checklist
Before you talk to a lender
- Work out your deposit as a share of the price you're looking at, and the LVR it gives
- Work out the repayment at your expected rate and at 3 percentage points above it
- Check whether the 5% Deposit Scheme or Help to Buy could apply, and the price cap where you're buying
- Set aside cash for stamp duty and buying costs, separately from the deposit
- If you use a broker, check their licence on ASIC's Professional Registers Search
Relevant Delora tool
Questions for a professional
- At my deposit and loan size, would I need lenders mortgage insurance, and what would it cost?
- What rate would you assess my application at, and what repayment does that give?
- Am I eligible for the 5% Deposit Scheme with you as a Participating Lender?
Official resources
- Moneysmart: save for a house deposit
- Moneysmart: choosing a home loan
- Housing Australia: 5% Deposit Scheme
- APRA: macroprudential policy settings, May 2026
- ASIC: Professional Registers Search
Important limitations: General information only, not credit or financial advice. It doesn't take your income, expenses, debts or goals into account, and it isn't an offer or an assessment of what any lender would approve. A lender, or a licensed mortgage broker, makes that assessment. Repayments are worked out with the standard monthly formula on the RBA's published average rate, with no fees; the rate you are offered depends on the lender, the loan and your circumstances. The deposit table ignores buying costs and LMI.
Sources and methodology
- Lenders' Interest Rates | RBA — Reserve Bank of Australia (retrieved 22 Oct 2026). Licence: CC BY 4.0
- APRA maintains current macroprudential policy settings in highly uncertain environment — Australian Prudential Regulation Authority (retrieved 22 Oct 2026). Licence: CC BY 4.0
- Strengthening residential mortgage lending assessments | APRA — Australian Prudential Regulation Authority (retrieved 22 Oct 2026). Licence: CC BY 4.0
- Activation of debt-to-income limits as a macroprudential policy tool | APRA — Australian Prudential Regulation Authority (retrieved 6 Oct 2026). Licence: CC BY 4.0
- Save for a house deposit | Moneysmart.gov.au — ASIC (Moneysmart) (retrieved 22 Oct 2026). Reuse terms: see the publisher's site
- Choosing a home loan | Moneysmart.gov.au — ASIC (Moneysmart) (retrieved 22 Oct 2026). Reuse terms: see the publisher's site
- Australian Government 5% Deposit Scheme | First Home Buyers — Housing Australia (retrieved 22 Oct 2026). Reuse terms: see the publisher's site
- Australian Government Help to Buy Scheme | First Home Buyers — Housing Australia (retrieved 7 Oct 2026). Reuse terms: see the publisher's site
- Using a mortgage broker | Moneysmart.gov.au — ASIC (Moneysmart) (retrieved 22 Oct 2026). Reuse terms: see the publisher's site
Figures on this page are drawn from Delora's local knowledge graph, refreshed from these primary sources and checked for changes on a regular schedule. If a figure here looks out of date, the official source above is always the authority — please let us know.
Evidence record
Keep reading
- Credit reports and your home loan application Previous in Prepare financially
- Safe budget vs. borrowing capacity On Budget & borrowing
- Pre-approval: what it does and doesn't mean Also in Prepare financially
- Ongoing costs of home ownership Also in Prepare financially
- What can I buy? Tool
- Decide what to buy Next step