A house is likely to be the most expensive purchase most you’ll ever make, and not many people can afford to buy one with cold hard cash.
That’s where home loans come into the picture. A lender agrees to pay for the property on your behalf, and you’ll be required to pay this money back over a period of time - usually 20 or 30 years.
However, you’ll need to prove to the lender that you can afford to cover the cost of the loan. One of the ways you’ll need to do this is by saving enough money to provide a deposit which acts as security for the home loan.
Many lenders require a deposit of at least 10%. While we do offer loans for borrowers with a 10% deposit, it’s best to have a 20% deposit to qualify for our lowest rate product.
Here are a few reasons why it’s important to have a bigger house deposit.
You’ll pay less interest in the long run
Many lenders, including loans.com.au, offer a lower interest rate to borrowers who have a bigger deposit. That’s because the more money you've saved, the less risky you are in the eyes of the lender. This reduced risk also means there’s less chance the lender will lose money if you default on the loan.
This reduced interest rate can add up to tens of thousands of dollars over the life of the loan.
loans.com.au currently offers a discount variable rate product that will allow you to boost your savings, build your equity and own your own home, sooner. Learn more about our new Smart Booster home loan here.
Reduce your repayments
What’s more, the bigger your house deposit is, the less money you need to borrow from your lender and the less interest you have to pay in the long run.
That means your mortgage repayments will be greatly reduced overall.
You’ll have low or no LMI costs
Lenders Mortgage Insurance (LMI) protects the lender against the risk that you will default on your home loan. If you have less than a 20% deposit saved up and need to borrow more than 80% of the purchase price, you’ll likely to need to cover the cost of LMI.
Generally, LMI costs around 2% of the value of the loan. So if you’re taking out a $500,000 home loan, that equates to $10,000. But if you have a deposit of 20% or more, you can avoid this cost entirely.
Ready to get started? Find out if you qualify for a home loan with us below or calculate your borrowing power.
Calculate borrowing power