Jackie* thought it would take her forever to save a 20 per cent deposit on a home. So she was delighted when she discovered she could enter the property market with just 10 per cent down on a mortgage.
Jackie visited Bank of Queensland to apply for an Intro Rate Variable Home Loan, which allows a maximum loan-to-value ratio (LVR) of 90 per cent and a minimum deposit of 10 per cent.
Depending on where you live, the difference between having to save 10 per cent and 20 per cent could be tens of thousands of dollars, according to CoreLogic median price statistics for each capital city.
The main benefit of buying a property with a 10 per cent deposit, rather than a 20 per cent deposit, is that it takes less time to save the money you need. This means you can apply for a mortgage sooner, and hopefully avoid seeing property prices rise while you’re still saving (which could mean saving for even longer). Once you have your home loan, if prices rise in your area, your property may also increase in value, growing your equity.
However, there are two main disadvantages of only saving a 10 per cent deposit – you will probably have to pay lender’s mortgage insurance (LMI) to help guarantee your loan, and your monthly repayments will be higher as you’ll be borrowing more of your home’s value.
It’s also important to consider the interest rate, fees, features and other benefits of a home loan before you apply, so you can be confident you’ll enjoy value from your mortgage.
For example, BoQ’s Intro Rate Variable Home Loan has an interest rate of 3.39 per cent (comparison rate 3.91 per cent) for two years, before reverting to 4.26 per cent (4.40 per cent). It also includes an offset account, allows unlimited additional repayments and offers free redraws.
While Jackie gets to enjoy these benefits, she also had to pay $500 in upfront fees – while there was no application or valuation fee, there was a $350 legal fee and a $150 settlement fee. And now that the mortgage has started, Jackie is also paying a monthly account-keeping fee of $10, and will eventually have to pay a discharge fee of $320 once she pays off the loan.
* Jackie is not a real person. This is a hypothetical case study.
CoreLogic data accurate as of 30 September 2019. BoQ data accurate as of 16 October 2019.