Just because lenders will let you sign up for a home loan with less than a 20 percent deposit, doesn’t mean you should. While lenders advertise home loans of up to 95 percent of the purchase price they aren’t advertising the extra costs that come along with having such a low deposit. If you do the calculations, it pays to save a chunky deposit.
Why it pays to save
Besides from avoiding pricey lenders mortgage insurance, 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 home 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.
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 and what you’re buying. They may also be eligible for stamp duty concessions – check if your eligible by using our stamp duty calculator.
- 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 home loan calculator as a guide to get you started.
- Compare home loans to see how much you could save.
