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Paying a deposit - what are the benefits?

Naturally no-deposit or 100% home loans do make it easier for young buyers and first-timers to get a start in the property market, despite the withdrawal of such loans in 2009, they are steadily making their way back into the market, especially for the purchase of lower-priced properties.
 
Shaun Rademeyer, CEO of BetterBond Home Loans, SA’s leading origination group has been quoted as saying that their last statistics show that the percentage of loans being granted for the full purchase price has actually fallen to 39% now from the 41% two years ago, and the figure is still trending downwards.
 
He says that this is due to the reaction on the part of the lenders to the recent contraction in the economy and the growing employment uncertainty on the part of the consumers. Adding that this further underlines the fact that it is always preferable for homebuyers to pay a deposit if they can.  

For example - if someone with a new 100% home loan were to suddenly lose their job, and had to sell their home in a hurry, there would be selling costs and agent’s commission to pay as well as the 100% loan to repay. This would mean that they could quite easily end up owing more than the sale price of their property. 
 
“The buyer who had paid a 10% or 20% deposit would obviously be able to cope much better in this situation – and it is worth noting that those who put down a deposit are also typically granted their loans at a lower rate of interest, which makes it easier for them to keep up with monthly repayments when times are tough.”
 
In addition, Rademeyer notes, those who save up a deposit before buying will save a significant amount on the total cost of their home over the loan period.
 
“For example, a R650 000 home bought with a 100% loan at 10,25% (prime plus 1%) would cost a total of more than R1,53m over 20 years. The same home bought with a deposit of R65 000 and a 90% loan would cost a total of about R1,38m.
 
“That is a saving of more than R150 000 - a pretty good return on the R65 000 that the homeowner ‘invested’ as a deposit. And it is likely to be even better if the buyer is able to secure a better interest rate by paying that deposit.”


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