I would like to join the conversation raised by Lucy Dean, (AFR) in her article published today (10 November 2025), titled “Debt fears keep young from entering ‘mortgage prison”.
A synopsis of the article is that the government in increasing the opportunity for young people to purchase a home with as little as a 5% deposit. Research carried out by the Macquarie Business School is quoted the following:
“There are a lot of people who will find the scheme unattractive because it leaves them with a huge mortgage that feels like a life sentence is very risky – what if they lose their job? Rates go up? They will prefer to be long-term renters rather than carry that burden.”
I applaud this attitude in young people who understand that they need a substantial deposit before embarking on a long-term debt. If you go back to post-war Australia banks would not lend unless you had a 30% deposit. As the economic conditions improved, deposits of 20% became the norm.
When considering a mortgage, there are several factors the borrower should consider:
- The current interest rate and the effect on cash flow should interest rates rise.
- Should rates be fixed or variable
- How will the length of the long effect interest costs.
The deposit of a loan will have a significant impact the total interest costs. The borrower needs to consider the cash flows for different deposits. The decision may be to save for a greater deposit before embarking on such a long-term commitment.
This table shows the interest costs for a home with a purchase price of $500,000, 7% interest rate, and term of 30 years with deposits ranging from 5% to 30%:
Note the difference between a 5% deposit and a 20% deposit is $104,000 in interest costs.
If the length of the loan were reduced from 30 years to 20 years, the following interest costs would be incurred for different deposits:
Note how reducing the length of the loan by 20 years will increase the monthly payments from $2,661 to $3,101 a month, but the savings in interest costs is $213,749. In addition, will be debt-free 10 years sooner, allowing to pursue investing either with or without debt.
You can subscribe to Financial Mappers Free. While your plans are limited to 5 years, there is an extensive list of Excel Tools, that will allow you to explore the loan variables so that you can choose the right loan for you. You can also consider the cost of loans should your interest rates rise or fall.
If you are looking for more information about debt you may want to consider these articles I have written:
- Impact of a cut in interest rates on your finances
- The importance of modelling future interest rates for financial planning
- The dangers of living on borrowed money explained
Glenis Phillips SF – Designer of Financial Mappers and Advice Online
Disclaimer: Financial Mappers does not have an Australian Services License, does not offer financial planning advice, and does not recommend financial products.
