First Home Guarantee: 5% vs 20% Deposit Repayments
Published 31 May 2026
The short answer
A smaller deposit means a bigger loan, so your repayments are higher. The First Home Guarantee (FHBG) lets you put down just 5% and avoid Lenders Mortgage Insurance (LMI) entirely. On an $800,000 home, a 5% deposit ($40,000) gives a $760,000 loan at roughly $4,557/month at 6% over 30 years, versus a 20% deposit ($160,000) and a $640,000 loan at roughly $3,837/month. That's about $720/month more, but you keep $120,000 of cash and skip the LMI you'd normally pay on a low deposit.
How the First Home Guarantee works
Under the First Home Guarantee (administered by Housing Australia), the Commonwealth guarantees the gap between your deposit and 20%. Because the lender is protected, it won't charge you LMI even though your loan-to-value ratio (LVR) is above 80%. From 1 October 2025 the scheme changed substantially: the income test was removed, places are unlimited, and the property price caps rose.
Key rules for 2025–26:
- Minimum 5% deposit (you fund the other 95% with the loan).
- No LMI: the government guarantee replaces it.
- You must be a first home buyer, an Australian citizen or permanent resident aged 18+, and live in the home.
- The purchase price must sit under the regional cap.
| State/territory | Capital city / regional centre | Rest of state |
|---|---|---|
| NSW | $1,500,000 | $800,000 |
| VIC | $950,000 | $650,000 |
| QLD | $1,000,000 | $700,000 |
| WA | $850,000 | $600,000 |
| SA | $900,000 | $500,000 |
| TAS | $700,000 | $550,000 |
| ACT | $1,000,000 | — |
| NT | $600,000 | — |
The scheme doesn't reduce your interest rate or your loan size; it only removes the LMI barrier so you can buy with less saved. You still borrow more, so you still pay more interest over the life of the loan.
Worked example: $800,000 home in NSW
Assume a 6% interest rate, principal & interest, 30-year term, monthly repayments.
| 20% deposit | 5% deposit (FHBG) | |
|---|---|---|
| Deposit | $160,000 | $40,000 |
| Loan amount | $640,000 | $760,000 |
| LVR | 80% | 95% |
| LMI | $0 | $0 (guaranteed) |
| Monthly repayment | ~$3,837 | ~$4,557 |
| Total interest (30 yrs) | ~$741,000 | ~$880,000 |
The repayment formula is P × r ÷ (1 − (1 + r)⁻ⁿ), where P is the loan, r is the monthly rate (6% ÷ 12 = 0.005) and n is 360 months. That gives $3,837/month on $640,000 and $4,557/month on $760,000, a difference of about $720/month, or roughly $139,000 more interest across 30 years for borrowing the extra $120,000.
Stamp duty doesn't change the comparison here. As a NSW first home buyer, an $800,000 home is fully exempt from transfer duty under the First Home Buyers Assistance Scheme (full exemption up to $800,000). So your two real trade-offs are these: more cash kept now and no LMI, versus higher repayments and more lifetime interest.
Without the FHBG, a 95% LVR loan would normally attract a hefty LMI premium (often well over $25,000 on a loan this size), which the scheme saves you. See how LMI is calculated by LVR band.
Model this in True Loan
Open the True Loan calculator and set up the two scenarios, then use the comparison tool to view them side by side:
- Property value: $800,000
- Deposit: $160,000 for scenario A, $40,000 for scenario B
- Interest rate / term / repayment frequency: 6%, 30 years, monthly (try fortnightly too)
- LMI: set to $0 for the 5% scenario, since the guarantee removes it
True Loan shows each loan's repayment, total interest, total cost, and a timeline of remaining debt, equity and LVR. If you want to see how to chip away at the larger FHBG loan faster, add an amount to the Extra repayment ($/month) input, or model spare cash sitting in the dedicated Offset balance input. These are two separate inputs, so use whichever matches your plan. Every scenario is shareable via its URL.
Common questions and mistakes
Does the First Home Guarantee lower my interest rate? No. It only removes LMI. Your rate and loan size are unchanged, so a 5% deposit still means higher repayments than 20%.
Is a 5% deposit always cheaper overall? No. You keep cash and skip LMI up front, but borrowing more costs more interest over 30 years. Compare both in True Loan before deciding.
Do I still need stamp duty money? Possibly. NSW first home buyers are exempt up to $800,000, but other states and higher prices may attract duty. Check how much deposit you actually need including upfront costs.
Should I save 20% instead of using the guarantee? That depends on your situation. See pay LMI now or save a 20% deposit to weigh the trade-off, not as a recommendation.
These figures are estimates for the 2025–26 financial year. Always confirm current rules and amounts with official sources such as Housing Australia, your state revenue office and moneysmart.gov.au. This is general information, not financial or credit advice.
This guide is general information and estimates only — not financial or credit advice. Figures vary by lender and circumstances; always confirm with official sources.