How a deposit affects your home loan

While it is possible to take out a 100% home loan, depositing a down payment will reduce the buyer’s monthly payments and increase their negotiating power when it comes to negotiating the mortgage interest rate.

However, with the costs of buying a home being as high as they are, many choose to forgo the deposit.

South Africa’s leading bond originator BetterBond reported that only two in 10 clients request 90% LTV, while six in 10 clients request 100% LTV.

Speaking on the benefits of buying with a deposit, Adrian Goslett, Regional Director and CEO of RE / MAX of Southern Africa, encouraged buyers to plan for the long term and not just for the immediate future.

“Not only will a buyer have to save for a down payment of around 10% of the asking price, but buyers will also have to budget for the various ad hoc expenses that come with buying a property, including the costs of registration and transfer rights.

While it can be difficult to save enough to cover these costs, buyers should remember that they will be paying off the mortgage for 20 or even 30 years – the interest accrued on it can run into the hundreds of. thousands of rand.

By reducing the loan amount by making a down payment, homeowners will end up saving a substantial amount in interest charges over the life of their loan.

To illustrate this point, BetterBond provided the following example: on a 1 million Rand bond at a 7% prime rate with a 10% deposit of 100,000 Rand, buyers pay 7,000 Rand per month, which is equivalent to Rand 1,674,646 over 20 years. But, those who do not deposit will pay R7,750 per month, which totals R1 860,717 over 20 years.

By making a 10% down payment, buyers save R 750 per month and R 86,071 on the loan (if you deduct the R 100,000 paid for the down payment).

BetterBond also indicated that the interest rate the bank is willing to offer will be more competitive when buyers deposit, so buyers should save even more money in this regard.

Beyond what buyers can save, Goslett also reminded buyers that putting down a down payment will increase their chances of getting bond approval.

“Our BetterBond partners report around 67% approval in 100% LTV applications. They report that the approval rate is 4% higher when buyers deposit a 10% deposit, and that approval rate improves as the deposit amount increases, ”Goslett said.

“While it’s never easy to save for a deposit, it will make it more affordable to pay off a lifetime asset that will provide financial security until a buyer’s retirement.

At this point, those years of discipline and sacrifice it took to save for the deposit will look like time well spent when you consider the long term financial security and return on investment that this decision has to offer ” , he concluded.

Information: RE MAX.

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