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First home buyers would be wise to consider saving at least 10 percent deposit, despite many lenders offering home loans of up to 95 percent of the purchase price. That's because the more you save for a down payment the less interest you are likely to pay overall so you'll be financially better off in the long run. By using our mortgage loan calculator you'll be able to determine the benefits of saving for longer before you enter the property market.
For instance, if you're in the market for a $400,000 property and want to borrow 95 percent of that – or $380,000 – at a rate of 7 percent interest, you'll likely pay around $425,700 in interest over 25 years. But with a larger deposit, of say 10 percent or $40,000, and paying the same rate of interest you could save over $20,000 dollars in interest. To see how much you could save, try using our mortgage loan calculator today.
Need further reasons to save?
While a higher loan-to-value ratio may seem attractive because a smaller deposit is required, there may be additional upfront costs involved in buying a home that you need to factor into your savings plan.
Expenses such as stamp duty, lenders mortgage insurance and establishment fees are just some of the additional funds you may need to outlay when purchasing a home. And some of these fees may be more expensive if you have a smaller deposit.
For a first home buyer, RateCity estimates these costs can equate to $15,000 and around $20,000 for other buyers, depending on where and when you buy. Therefore first home buyers purchasing property valued at $300,000 would need to save at least $30,000.
How to get there, fast
The good news is that you may be able to reduce some of these additional costs, which means you won't have to save as much if you follow some of these steps:
- Lower your property purchase budget. Some states across Australia offer exemptions or discounts on stamp duty depending on how much you want to borrow.
- First home buyers may be eligible to receive a grant depending on where you live.
- To help your money grow faster setup a high interest savings account with an automatic savings plan, so your funds are automatically deposited into the account regularly.
- Use a mortgage loan calculator as a guide!
