Prospective
home owners that save for a deposit are not only more likely to obtain a loan,
but can also benefit from a better interest rate, which will save them
considerable amounts over the term of their bond.
“For
many owners your home will be your biggest asset, so the more it can work for
you and help you create wealth, the better. This starts as early as when
considering buying a property and saving for a deposit,” says Ewald Kellerman,
Head of Sales at FNB Home Loans.
Around
half of all new home loan applicants are for 100% loans; which means that the
applicant does not have the intention of putting a deposit down. First time
buyers are least likely to have a deposit available and they are increasing in
prominence. According to the FNB 2013 Q2 Estate Agent Survey 22% of new buyers
are first time home buyers.
However,
putting down a deposit, even a minimal amount can greatly benefit a home buyer
as people who demonstrate the ability to save are typically considered lower
risk by the banks.“Saving for and putting down a deposit on a home loan is a
very good way of saving for the future,” says Kellerman. “There is no ‘right’
amount for a deposit, banks typically ask for anything from 10% to 20% deposit.
However, if you are unable to afford such a high amount at the time, even 5% is
better than no deposit at all.”
One
should also take into account that there are many other costs to consider when
buying property like transfer duty, registration and initiation fees.
“We
find that many customers who have saved additional funds or have a surplus
after selling their previous property still apply for a 100% bond with the view
to deposit the additional funds after the bond is registered,” says Kellerman.
While
depositing funds after registration will bring down the capital and reduce the
amount of interest charged to the bond, it is not the most effective way to use
your savings; it is far more beneficial to put down a deposit for a bond
upfront.
New
home owners need to realise that owning a home can be expensive in different
ways.
“Rates,
taxes and general maintenance on a larger free standing house add up quickly
and can sometimes end up getting to the point where it is no longer
affordable,” continues Kellerman.
First
time buyers seem to be much more interested in higher density units where some
of the communal costs are shared while a number of existing owners are scaling
down to save on the increasing running costs of a property.
“Many
home owners scale down later on in life to access some of the capital saved in
a property. This enables the funds to be reinvested somewhere else for better
returns or help to top-up a retirement fund. Our 2013 Q2 Estate Agent survey
estimates downscaling due of life stages make up 21% of all residential
property sales,” adds Kellerman.
July
is National Savings month and there are other ways you can use your home loan
to save.
Tips
for savings with a home loan
-
Change
the installment date to the day you receive your salary. As interest on home
loans is charged daily, the earlier you reduce your balance, the less interest
you end up paying in total. This movement is very small on a monthly basis, but
compound interest makes this small change valuable throughout the entire term
of the loan and is a great way to save on the total interest paid
- Paying as little as a 10% additional
payment per month into your bond could save approximately four years of
repayments and R250 400 in interest on a R1m loan over the life of the loan.
These calculations have been based on the current level of interest rates. The
additional repayment is immediately set off against the capital value of the
loan, thereby reducing interest paid and saving you in the long term.
