3 Reasons to save for a home deposit
Category Helpful Hints
3 reasons to save for a home deposit
25 Feb 2015
Most home buyers are aware that coming to the negotiation table with a sizeable percentage of the purchase price as a deposit will give them a considerable advantage over other potential buyers.
A deposit of 20% results in a much smaller minimum monthly mortgage payment from the outset, and possibly even a preferential interest rate on your home loan.
This is according to Shaun Rademeyer, CEO of BetterBond Home Loans, who says this is especially true in the current market, where stock is in short supply and many sellers are receiving multiple offers to purchase.
He says the reason is that, given the choice, sellers will almost always choose the offer from the buyer with the biggest deposit.
“This is partly psychological, in that the buyer who is prepared to put a large sum of their own money into the transaction looks more serious, and partly practical, because such buyers are usually also those whose financial affairs are in good order and who have already been pre-approved for a home loan.”
Over the past few years, the banks have also gone to great lengths to explain how paying a deposit can shorten the repayment term of your home loan and save you thousands of rands worth of interest, and how it can help you deal with future interest rate increases.
However, Rademeyer says there are even more good reasons to save up 10% or 20% of the purchase price before you go house hunting. These include:
1. Protecting your investment if you lose your job
A deposit of 20% results in a much smaller minimum monthly mortgage payment from the outset, and possibly even a preferential interest rate on your home loan. Try the bond calculator to get an idea of the monthly instalments.
This means that if you lose your job or are unable to work for a while, you and your family will have a much better chance of being able to keep up your bond instalments until your situation improves.
2. Being able to afford major improvements
Your Home Owner’s Insurance (HOC) will cover any repairs needed after a fire, flood or other such events, but what if you suddenly need to build an addition to accommodate an ageing parent, or decide to convert to solar power to avoid load shedding?
If you originally paid a 20% deposit and your home has increased in value in the meanwhile, you should be able to access the cost of such improvements from your home loan account, instead of having to take out a personal loan at a much higher interest rate.
3. Being able to cope with major life events
Paying a large deposit and having equity in your home from the start puts you in a much better position to cope financially if someone in your family has a major accident or gets seriously ill.
Such equity, built up over the years of homeownership, is sometimes also used for debt consolidation, and quite often to give a child a university education that would not otherwise have been possible.
Author: Shaun Rademeyer CEO Better Bond