Is Your Deposit Enough?
Tuesday January 20, 2009
Saving up a large deposit seems to have become rarer for many first time home buyers, but could a home loan cost you more because of a low deposit? Many home loan lenders will optimally want a deposit worth 20% of a home loan. This can be somewhat difficult to save for considering average Australian housing prices are reaching the $350,000 to $400,000 mark. In order to offer home loans to more customers then, some home loan lenders allow for much reduced deposits, as little as 5% and some will even accept no deposit at all. This means extra risk for the home loan lender, however, so you may find that you must accept higher home loan rates as well as the necessity of payment insurance if you want to take out a home loan with a lower deposit requirement.
Using home loan calculators as well as usual financial planning tools, you should work out whether you would be much better off saving a full deposit than you would taking out a home loan that requires a low deposit. Work out the extra amount of rent you would pay while saving, work out whether you could get a better rate if you wait, and calculate the costs of taking out a loan for longer and the amount you will need to pay in mortgage insurance over time. If waiting will save you more money overall, work out whether refinancing would make a difference if you start a poorer home loan now and choose a better one in the future. Once you have figured out the best value over time, you will be in a much better position to make a decision about whether you should take out a home loan now or wait until you have saved more.
Please visit our comparison page if you would like to compare home loans and mortgages or to start looking for a home loan.