Putting down a deposit will save you money when you take out a home loan, because a deposit will generally help you to secure the best possible interest rate.
July is National Savings Month, and First National Bank (FNB) Home Loans has some advice on how you can save on your home loan repayments.
The benefit of putting down a 10-percent deposit, instead of taking out a 100-percent loan, can be a saving of 0.2 to 0.7 percentage points, if not more, Tommy Nel, the head of credit at FNB Home Loans, says. This could mean a saving of R30 000 or R100 000 on a R1-million mortgage bond with a 20-year term. However, the deposit is not the only factor that the bank will consider when deciding on the interest rate.
The other important advantage of a deposit is that it increases the likelihood that you will be granted a home loan in the first place. “Having a deposit will assist in demonstrating to the bank that the applicant has the ability to manage their finances well and live within their means, which means having a deposit can only count favourably when applying for a loan,” Nel says.
Here are two ways to save if you have a home loan:
* Change the date on which you pay your home loan instalment to the day on which your salary is paid into your bank account. Interest on home loans is charged daily, so the earlier you reduce your balance, the less interest you end up paying in total.
* If you pay as little as 10 percent more a month towards your mortgage bond, you will save about R250 400 in interest on a R1-million loan taken over 20 years, and you will pay off the loan four years earlier. This calculation assumes an interest rate of 9.25 percent.