How much should I save as a Home Loan Deposit?

ACA Mortgage Solutions regularly consult with prospective home buyers to help find the best home loans that are currently available. In 2014 alone, we settled more than 380 million loans for our clients. Suffice it to say, we’re in an excellent position to help secure the right loan for you.

In our client consultations, we find that certain questions come up over and again.  How big of a property deposit payment should a borrower expect to pay? Buyers understandably want the best possible position both to receive the loan and to make successful repayments.

Several variables determine the amount of deposit you put on a property. However, the conventional wisdom is that 20 percent of the purchase price makes the most sense.

Here are three very important reasons that most financial experts recommend paying one-fifth of the purchase price up front:

  1. Lenders are more likely to approve the loan.

    When it comes to depositing payments, 20 percent is something of a magic number. When a buyer commits to a larger deposit, the loan is considered less of a risk.  The world plunged into a major economic crisis less than a decade ago, precisely because lenders were lax in this regard.  An industry standard of 20 percent makes sense, and it goes a long way toward assuring lenders that you intend to keep up with your repayments. No one wants to lose that deposit amount, after all.

  2. Borrowers enjoy lower interest rates.

    In keeping with the idea of 20 percent as an industry standard, we should also note that lenders are more likely to lower their rates when the buyer deposits this amount down. Even the slightest adjustment in your interest rate can make a major difference over the life of your loan. You can easily save tens of thousands of dollars in interest, by the time the loan is paid in full.

  3. You get instant equity.

    We’re still seeing a major boom in housing markets across much of Australia. The amount of money that you pay as a deposit on a house becomes instant equity. As property prices increase, so does the value of your 20 per cent stake in the house. With prices continuing to rise across Sydney, Melbourne and many other places in Australia, this is an excellent time to invest your saved deposit into a property.

  4. Avoid Paying Lender Mortgage Insurance.

    The amount that you borrow will determine if your loan attracts lenders mortgage insurance LMI.  If you borrow more than 80 percent of a property value, Lenders Mortgage Insurance will be imposed on your loan. You can save yourself thousands of dollars if your deposit amount is 20 percent or more than the purchase price.

If you’re currently in the market for a new home in Australia, ACA Mortgage Solution can help you find the best mortgage deals available. We’ll help you determine what an ideal down payment looks like for you – taking your current financial situation and savings into account. Contact our team today to determine your eligibility for a loan and to secure instant approval.