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How to grow your home loan deposit

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Ever wondered whether you should hold off from buying a property to save up just that little bit more for your deposit?

Well, as the saying goes “the bigger, the better,” and this can be said for a home loan deposit.

You want to stretch your money as far as possible because a larger deposit will help you when the time comes to apply for a home loan.

Find out why a bigger deposit is better and the tips and tricks you could use to help grow your deposit pot.

Why is a bigger deposit better for first homebuyers?

As a first homebuyer, there are a lot of things to be excited about, so it’s understandable that you’d want to get into the market as quick as possible. However, this isn’t always the best idea.

While you don’t always need to save a 20% deposit, it can be far better for you now and in the future.

With a larger deposit (generally 20% or more), you can:

  • Avoid paying Lenders Mortgage Insurance (LMI): If you have a 20% deposit or more, you don’t have to pay LMI. For example, on a $500,000 loan, you would need a $100,000 deposit to avoid LMI. Waiting a few extra months to save additional money will see you avoid paying LMI which can be tens of thousands of dollars. It’s better to have that money safe in the pot for all the expenses that may come up after you move in like furnishings.
  • Negotiate a lower interest rate: A bigger deposit means you possess less risk to a lender. This can give you bargaining power to negotiate a better interest rate along with a wider choice of lenders to choose from.
  • Pay less interest: A large deposit will save you money in the long run. The less you have to borrow means your repayments will be smaller which means you pay less interest over the life of the loan. Visit our Home Loan Repayments Calculator to find out what your monthly mortgage repayments could be.

Remember, each lender will have different lending rules and standards - make sure you have enough saved up to meet the requirements.

If you’re shy of meeting the 20% deposit, there are government schemes available such as the First Home Owner Grant (FHOG) that you can apply for to boost your deposit.

The benefits of saving a larger mortgage deposit

To help you see the benefits of having a larger mortgage deposit, consider the following scenario.

10% deposit:

  • Property price - $800,000
  • 10% deposit - $80,000
  • Loan amount - $720,000

20% deposit:

  • Property price - $800,000
  • 20% deposit - $160,000
  • Loan amount - $640,000

30% deposit:

  • Property price - $800,000
  • 30% deposit - $240,000
  • Loan amount - $560,000

If you were to have a 30-year loan term at an interest rate of 4.50% p.a., your monthly repayments would be very different between the 3 scenarios.

  • Monthly repayments with a 10% deposit is $3,648.
  • Monthly repayments with a 20% deposit is $3,243.
  • Monthly repayments with a 30% deposit is $2,837.

Between each scenario, there is over $400 worth of savings per month which shows just how much a bigger deposit can benefit your mortgage repayments.

Along with the benefits already mentioned, here are a few others to consider:

  • Increases your chance of approval
  • Could allow you to qualify for special loan and interest rate deals
  • Repayments are more manageable (as they’re smaller)

Tips to actually save a larger deposit

Saving for a deposit can take some time, so here are some tips and tricks you can do to help your pot grow that little bit bigger and faster.

Track your spending

In other words, know where your money is going. By reviewing your spending habits, you can identify areas to cut back on e.g. subscriptions you’ve totally forgotten about. Once you’re familiar with where your money goes, budgeting will be far easier.

Work out a budget

Determine how much you can afford to put away each week and stick to it. One way you can do this is by setting up automatic transfers. As soon as your pay arrives, an allocated amount will go straight into your savings account.

Tighten your budget

This can be done by eliminating luxuries such as buying lunch out or shopping every weekend. You don’t have to stop doing these things completely, but set a limit that is comfortable enough for you, while also seeing a boost in savings.

Government schemes

Take advantage of various grants and concessions available such as the FHOG or Regional First Home Buyer Guarantee. You could add up to an additional $30,000 to your home loan deposit depending on the state you live in.

If you’ve saved up your deposit and are ready to make the home loan leap, contact one of our friendly lending specialists to find out if you qualify.

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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