In a hurry to buy? A smaller deposit could mean smaller savings in the long-term

Article insights:

• A larger home loan deposit on a lower-priced property can reduce monthly bond repayments and improve long-term savings.
• Buying a more affordable home may increase your chances of qualifying for a home loan and securing a lower interest rate.
• Even a small interest rate concession on a bond can save homeowners thousands of rands over the loan term.
• Paying extra into your bond each month can shorten your repayment period and significantly reduce total interest costs.
• Using a reputable bond originator can help homebuyers compare bank offers, improve approval chances, and secure better home loan interest rates.

Is there any point in waiting to save up a large deposit on a home when interest rates start declining, and the banks are in a hurry to grant more home loans?

Many buyers feel they should take advantage of lenient lending conditions and secure a home loan with whatever deposit they have. There’s a perception that waiting to save more could mean the risk of stricter lending conditions, higher home prices, or escalating interest rates.

But that urgency could be the undoing of over-hasty homebuyers. In our experience, the best choice, if you’re in a hurry to become a homeowner, is to use whatever cash you have saved up to pay a bigger percentage deposit on a less expensive property – not a smaller percentage deposit on a higher-priced property.

The advantages?

• You’ll need a smaller home loan
• Your minimum monthly bond repayment will be lower, and you’ll need less disposable income to cover it
• The monthly household income you need to qualify for the loan will thus also be lower
• You may even be able to pay an additional amount off your bond each month and pay your home off that much earlier!
• You’ll have a better chance of qualifying for an interest rate concession on your bond, which could save you thousands of rands on the total cost of your home over 20 years

On a R1 million home loan, an interest rate concession of just 0.5% will reduce the total cost of your home over 20 years by almost R80 000. And if you’re then able to put in an additional R500 a month, you’ll pay off your home in just over 17 years, instead of 20 – and save a further R195 000 in the process!

Whether you’re in a hurry to buy or you have time on your hands, it’s always a good idea to use a reputable bond originator like BetterBond. You’ll improve your chances of approval, and, with banks competing to offer you the best interest rate, you’ll be enjoying those savings at leisure.