Saving for a House Deposit
If you had a five percent deposit for a house purchase but decided to wait and save for a ten percent deposit because you thought it would be cheaper, the chances are the house price is going up in value at a greater pace than you are saving and cost you more. To illustrate:
| Purchase Price |
Deposit 5% |
Loan 95% |
| $400,000 |
$20,000 |
$380,000 |
| 10% increase |
Deposit 10% |
Loan 90% |
| $440,000 |
$44,000 |
$396,000 |
| increase |
$24,000 |
$16,000 |
By waiting, not only would you need to save a further $24,000 but also the loan would still be a further $16,000 even though you are borrowing 90 percent instead of 95 percent.
If you have no deposit and suddenly see the merits in purchasing – don’t despair. There are some very good options for 100 percent finance available in the market from a range of lenders.
Interest Savings on Your Mortgage
When we think of interest savings, we automatically think cheapest rate and yes, the interest rate is very important but what about the debt structure?
If you have a $350,000 loan at a rate of nine percent, the interest per annum would be $31,500 so if you could get a cheaper rate of 8.9 percent, this would reduce the interest payable to $31,150; a saving of $350 per annum.
The reality is that this is not that big a saving – so maybe you could challenge yourself to spend a little more time sourcing the right loan structure rather than getting the cheapest rate.
On a loan of $350,000 at a rate of nine percent over a 30-year term, you would not only pay $350,000 back but a massive $664,000 in interest as well. So if you managed to pay an additional $50 per week off the loan, you could save a massive $189,000 in interest and reduce the term by seven years. Isn’t this a better saving?
Minimise Your Risk
Congratulations if you have now decided to follow through with a review; here is one last item to look into: What would the consequences be to your financial position if you or your partner lost their income?
Remember, the key to all of this is you; minimise your risk, insure yourself. If you don’t, no matter how much you change and improve your position, or how hard you work to create wealth, something as small as an illness or accident could set you back months or years on your quest for financial freedom and wealth.
Tracey Munns
Mortgage Advisor, Owner Connect Mortgage Services Ltd
0508 more than mortgages
Connectmortgages.co.nz
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