BlogMortgageShould I buy now or save a larger deposit?

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Ok ladies, this week we tackle the eternal property dilemma:

“I’m a single mum to a six year old and I am hoping to have a house deposit together early next year, but I am not sure whether I am better off saving a larger deposit or just getting into the market as soon as I can. What do you think?”

Now, each mortgage broker, real estate agent or financial adviser will have a different take on this but here is my personal opinion on the big deposit v “just getting in” debate.[/cs_text][/cs_column][/cs_row][/cs_section][cs_section bg_color=”#252525″ parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 0 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_custom_headline level=”h2″ looks_like=”h3″ accent=”false”]In general, the bigger the better.[/x_custom_headline][cs_text]A larger deposit can benefit you in a few ways:

  • It gives you wiggle room with the bank if things go wrong and you struggle to make repayments
  • Once you borrow over 80% of the value of a home, not only is it harder to get a loan, often the interest rates aren’t as competitive, but you are also liable to pay something called Lender’s Mortgage Insurance. Basically this is a premium you pay for being “high risk”. The bank takes out an insurance policy to cover them in case you default, and they pass the cost onto you. Let me be clear – this insurance policy protects the bank, not you. As you can imagine, this can get quite expensive and in fact, the premium doubles once you cross 90%.
  • Any equity you gain as a result of an increase in the value of your home is only of use to you if you sell (or if you were to take on more debt) whereas if you have some cash equity on your mortgage it could potentially be drawn on down the track.

[/cs_text][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 0 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_custom_headline level=”h2″ looks_like=”h3″ accent=”false”]Other factors to consider[/x_custom_headline][cs_text class=”cs-ta-left”]Where you are looking to buy is also important.

Many experts suggest that Canberra still has a little way to slow down before going back up, Sydney appears to be slowing and speculation is that there is an oversupply of apartments in both Sydney and Melbourne which may have a knock on effect on house prices, and Perth and Darwin are feeling the pinch from the end of the mining boom.

Now, of course the economy is a hard thing to predict and for every expert saying a market is slowing there will be another arguing the opposite.

Even so, I believe that under the circumstances you will not miss out in the long run by building up a bigger deposit before buying. In my opinion it is certainly better to wait a few extra months than risking the alternative of not being able to afford the mortgage once rates start to rise, being forced to sell and potentially losing money in the process as a result.[/cs_text][x_custom_headline level=”h2″ looks_like=”h3″ accent=”false”]If it were me…[/x_custom_headline][cs_text class=”cs-ta-left”]Here is what I would do:

  1. Do my market research, including speaking to property experts and reading up on research houses such as SQM Research and Corelogic.
  2. If property prices are an issue, give serious thought to living somewhere more affordable, it may sound daunting but its not impossible!
  3. Save up as much of a deposit as I can. 20% of the value of the home you want to buy, plus 5% to cover stamp duty and other fees is ideal (unless you are a first home buyer and eligible for concessions which is worth checking!) Use the Women with Cents Stamp Duty Calculator to get an idea of these costs.
  4. Investigate the cost of lender’s mortgage insurance – the Genworth LMI premium calculator is a great user friendly tool.
  5. Check out the Women with Cents loan repayment calculator and see how big a mortgage I could afford at interest rates of 6-8%. I would use this as my guide when deciding on what price range to look at, instead of going by what the bank is willing to lend me.

[/cs_text][/cs_column][/cs_row][/cs_section][cs_section bg_color=”rgb(37, 37, 37)” parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 0 0px 25px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_custom_headline level=”h2″ looks_like=”h3″ accent=”false”]WE CAN HELP![/x_custom_headline][cs_text]If you would like a helping hand obtaining a home loan, including getting an understanding of your borrowing capacity, just book in for a free 15 minute phone consultation. Click below to get in touch and drop us a line.[/cs_text][x_button size=”global” block=”false” circle=”false” icon_only=”false” href=”mailto:tash@womenwithcents.com.au” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””]ASK TASH[/x_button][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 25px 0px 0;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][x_image type=”none” src=”http://www.womenwithcents.com.au/wp-content/uploads/2016/07/Email-photo.jpg” alt=”” link=”false” href=”#” title=”” target=”” info=”none” info_place=”top” info_trigger=”hover” info_content=””][/cs_column][/cs_row][/cs_section][cs_section parallax=”false” separator_top_type=”none” separator_top_height=”50px” separator_top_angle_point=”50″ separator_bottom_type=”none” separator_bottom_height=”50px” separator_bottom_angle_point=”50″ style=”margin: 0px;padding: 45px 0px;”][cs_row inner_container=”true” marginless_columns=”false” style=”margin: 0px auto;padding: 0px;”][cs_column fade=”false” fade_animation=”in” fade_animation_offset=”45px” fade_duration=”750″ type=”1/1″ style=”padding: 0px;”][cs_text style=”font-size:12px;”]The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material in which to help you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investments or financial decisions.

Sova Financial Pty Ltd Trading as Women with Cents. ABN 71 163 435 836 | Sova Financial is an authorised Credit Representative Number 443432 of Finsure Finance & Insurance Pty Ltd, ACL 384704, ABN 72 068 153 926[/cs_text][/cs_column][/cs_row][/cs_section][/cs_content]

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The information provided by Women with Cents is general in nature. It doesn’t take into account your objectives, personal financial situation or needs. Think of it as educational material that helps you make more-informed decisions. We recommend you obtain financial, tax and credit advice specific to your situation before making any investment or financial decisions.

Sova Financial Pty Ltd Trading as Women with Cents (ABN 71 163 435 836) | Sova Financial is an authorised Credit Representative (443432) of Finsure Finance & Insurance Pty Ltd (ACL 384704, ABN 72 068 153 926)