For those of you about to embark on the mortgage application journey, you might be wondering about a few things in particular. Who will be applying? When are you planning on going to the bank? Are you thinking of using our team at Mortgage Broker Melbourne? How much should you save up for your deposit?
These types of questions go through most people’s minds, in fact if you haven’t thought of them already, then you might want to reconsider jumping in at the deep end!
You might not know this, but the majority of banks will require a particular percentage to be paid upfront to act as your deposit. What this percentage is will vary from lender to lender, but in most cases it’s safe to say that they will ask for at least 10%. In Melbourne, where the average property price is about $750,000 AUD, you’ll be looking at saving up at least $75,000 to reach the 10% mark.
Some lenders might ask for more, anywhere between 15% and 25% in fact, and in these cases you’ll be looking to pay quite a hefty sum upfront. If your bank requires a 25% deposit, that’s $187,500 that you’ll need to cater to – and if we’re honest, there aren’t many people that walk around with that type of cash in their back pockets.
You might have been saving for years, or perhaps you’ve just had a bit of a windfall, but whatever the circumstance, you’ll undoubtedly want to meet the minimum percentage in order to have your application considered. But what about those of you that want to put a little extra toward your deposit? Is it really worth it?
You have to spend money to make money
If you’re expected to pay $187,500 toward the cost of your deposit, then you might be unwilling to spend even a cent more, because that’s a huge amount in the first place! But what you might not realise is that the more that you pay upfront, the less you will have to borrow. The less that you receive from your bank, the smaller the duration of your repayments.
And the smaller your repayment duration, the less interest you will have to cater to. We’re not talking about adding another $50k either; as little as $5,000 to $10,000 could make quite an appealing difference. That’s $10k that you won’t ever have to pay back and in terms of monthly repayments, that could be almost a year’s worth knocked off of your mortgage!
In fact that’s probably the best way to look at it – for every $10k that you pay, you could shave around 12 months from your mortgage repayment plan. If you can stretch to $20k on top of your deposit, you’ll knock at least 2 years off of your plan, whilst saving yourself quite a nice amount on interest rates.
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Disclaimer -This page/article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.