Your home loan deposit is your contribution to the price of the property you are thinking of buying. Your deposit is a key factor in determining the kinds of loans you are eligible for.
Why size matters
When you’re saving for your home loan deposit, it’s great to aim for at least 5% of what you are willing to pay. It’s not always necessary to have a 5% deposit, although the larger the deposit, the larger the choice of lenders and loans available to you. If you have at least a 20% deposit you generally avoid paying Lenders Mortgage Insurance (LMI).
Lenders require a pattern of genuine savings to be demonstrated if you want to purchase a property with a Loan Value Ration (LVR) of over 85%. This is generally for a minimum amount of 5% of the purchase price. Your savings must be held at least 3 months immediately before you apply for the loan. The following types of savings are considered to be genuine savings that count towards the calculation of the amount of your deposit:
• Savings account statements showing regular contributions
• Share certificates
• Term deposit
• Equity in other property
How much deposit do you need
The amount of your deposit can also affect the interest rate on your loan. A bigger deposit means you might be able to negotiate a better rate across a larger selection of lenders. And, of course, the less you borrow, the less interest you pay over the life of the loan.
Here are some of the advantages of having a large deposit:
. It gives lenders an idea of what you can afford to repay
. It may impact the interest rate lenders offer
. It affects how ‘risky’ you are as a customer, and whether you need to pay LMI
. You pay less interest over the life of your loan