5% Deposit Sounds Great Until You See the 30-Year Interest Bill

The Australian government says 5% deposit is enough to buy a home. Sounds accessible, right? Low barrier to entry, get on the ladder early.

I went and pulled the latest ABS lending data. The numbers tell a different story.

In the December 2025 quarter, there were 31,783 first-home-buyer loans settled — up 6.8% on the previous quarter. That growth sounds positive until you look at the average loan size: $607,624.

Note: that's not the average property price. That's the average amount of debt. The property price is higher — the $607,624 is what's left after the deposit.

Let me translate that into lived experience.

The 30-year cost of a $607K loan

At the current average variable rate of approximately 5.5%, monthly repayments on a $607,624 loan over 30 years come to $3,407.

That's $40,884 per year in mortgage payments. On a household income of $120,000 (roughly the median for first-home buyers), that's 34% of gross income going to the mortgage. After tax, it's closer to 45% of take-home pay.

But the truly confronting number is the total repayment.

Over 30 years at 5.5%, you repay $1,226,520. You borrowed $607,624. The remaining $618,896 is pure interest.

You paid for your house twice. The bank got the second payment.

The 5% deposit policy didn't make housing cheaper. It made debt easier to access. Those are very different things.

"A low deposit lowers the barrier to entry. It does not lower the price of entry. The price is the 30-year interest bill. And at current rates, that bill exceeds the original loan amount." — Yan Zhu

The LMI trap within the trap

When you borrow more than 80% of a property's value, most lenders require Lenders Mortgage Insurance (LMI). On a $700,000 property with a 5% deposit ($35,000), the LMI premium is approximately $15,000-$18,000.

Most buyers don't pay this upfront — it gets capitalised into the loan. So your $665,000 loan becomes $680,000-$683,000. More debt. More interest. More total cost.

There are exemptions. The federal government's First Home Guarantee scheme allows eligible buyers (single income under $125,000 or couple income under $200,000) to borrow up to 95% without LMI. Victoria's First Home Owner Grant provides $10,000 for new builds under $750,000.

These are genuine concessions. But they don't change the underlying maths. Whether you pay LMI or not, a 95% LVR loan means you're starting with almost zero equity buffer. If property values dip even 5% in the first year, you're in negative equity — you owe more than the property is worth.

Negative equity isn't just an accounting problem. It restricts your ability to refinance, traps you with your current lender (who may not offer competitive rates), and eliminates the option to sell without bringing cash to the table.

For investment-minded buyers, our approach is different. We recommend using the 5% deposit pathway strategically: buy in a high-growth suburb where the probability of immediate appreciation is strong, spend the first year building equity through natural growth or light renovation, then refinance at 80% LVR to eliminate the LMI exposure and access better interest rates.

What first-home buyers should actually do

I'm not against the 5% deposit policy. I'm against using it blindly.

The policy works well when it's combined with smart property selection. It fails when buyers stretch their budget to the absolute maximum the bank will approve, buy in a suburb with no growth catalysts, and then spend 30 years servicing a loan that could have been $100,000 smaller with better choices.

Practical framework:

1. Use the 5% deposit to buy a high-growth investment property (not a lifestyle home in a stagnant suburb)
2. Target suburbs with proven monthly appreciation — Melbourne's southeast has been running at $5,000/month
3. After 12-18 months, refinance when the property has appreciated enough to drop your LVR below 80%
4. Use the equity release as a deposit on your next property, or to pay down the loan principal

The deposit scheme is a tool. Like any tool, it's useful when applied correctly and dangerous when applied carelessly. A 5% deposit on a $600,000 property in Cranbourne — where vacancy is 1.3% and monthly growth is consistent — is a calculated risk with strong odds. A 5% deposit on a $600,000 apartment in Docklands — where supply is infinite and values are declining — is financial self-harm.

"Don't confuse access with affordability. The 5% deposit gives you access to a $600K property with $30K cash. But the affordability question is whether you can service $3,400/month for 30 years while still eating, saving, and living. That's the calculation most first-home buyers skip." — Yan Zhu