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Should I save for a house deposit or pay debts first?

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If you’re weighing up whether to save up for a house deposit or pay off all your outstanding debts first, start by assessing your financial position in life, and work from there.

How much deposit do you need to save?

Taking out a loan to buy a house is a big investment and a lifetime commitment. If you want to borrow from any bank in Australia, you'll generally need a minimum of 5% of the property's purchase price to put down as a deposit.

Although most buyers will aim for a 20% deposit in order to avoid paying Lenders Mortgage Insurance (LMI).

Though there are other ways of getting a loan, it always helps to have as large a deposit as possible to help reduce the amount of interest paid on the home loan over the full loan term.

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Saving for a deposit vs. paying off debts

The answer here really depends on how much debt you have but generally the rule of thumb is try to pay off your existing debts first.

Especially if you have more than 5 percent of the price of the property in unsecured debts such as personal loans, car loans, credit cards etc., then it’s a good idea to take care of those commitments first before you fully concentrate on saving up for a deposit.

No matter the size of your deposit, there's always a way to owning your dream home. Find out about low deposit home loans today.

Tips for getting your finances in order


Getting your finances in order shouldn’t be difficult, but for many it can be tricky to figure out where to start or what to focus on first. Here are 4 steps you can take to kickstart getting your finances in order:

  1. The first step is to stop borrowing more money. You don’t want to add to any debts you already have, as this will only cause your financial position to decline. If you want to save enough money to buy a house, you will need to make some sacrifices. These include ignoring the urge to buy expensive items until you’ve saved up enough for a deposit.

  2. Pay off one debt at a time. Start by paying off the debt charging the highest interest rate first. Make sure to pay all your credit card bills on time, because defaulting can affect your ability to get approved for a home loan. Gradually make payments on your debts. Set out a plan to pay off your high interest debts first and then look at ways you can reduce your outgoings to save more money.

  3. Open a high interest savings account. After you’ve paid off your high interest debts, switch to actively saving in order to gather the 5% deposit for your home loan.

  4. Check if you're eligible for a grant. Some state governments in Australia offer grant and stamp duty exemption for first home buyers. If this is applicable to you, talk to one of our Home Loan Specialists to see if you can access these options.

  5. Keep your savings account separate. You may want to think about saving up the money in a separate savings account with higher interest rates and fees for withdrawing. This will deter you from withdrawing money to buy day-to-day things.

If you’re interested to know more about financial planning for home loans, then talk to our team of experts and find out the best way to go about saving for a deposit.

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Tags: deposit, investing, loan, first home buyer, new purchase

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856, Credit Representative 518849), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of lenders including ClickLoans, a related body corporate of Auscred Services. Although Lendi compares over 1600 products from over 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 40% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. We have an independent and founder led board.
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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