Saving for your first home loan deposit.
The deposit for your first home may well be the biggest saving effort you’ll
have to make. Most banks ask for between 5-10% for a home loan deposit. For your
first house, you’ll probably need to cover bank fees, mortgage insurance and
stamp duty in your savings.
This means that the actual sum you’ll need to save is approximately 20% of the
loan value. Of course this does depend on the loan product you’re purchasing,
but as a general rule of thumb, the bigger your cash deposit, the better.
Depending on how much you earn, and how many people are contributing to the
savings, some you should expect the process to take between 12-18 months to come
up with a deposit.
Banks like to see a “Loan repayment” like savings pattern, i.e. money going in,
and not being touched. So set aside high interest savings account, and limit
your access to withdraw. If you
imagine this money as spent and gone, it does take the pressure off the
willpower required to save.
If you have two people saving for the deposit, consider living off one income,
and investing all of the other income in a high interest savings account. When
you eventually get the loan, you’re going to need to pay it back, so getting
used to living off one income is helpful right from the beginning.
Selecting your savings account is another strategy that will help speed up the
process. Shop around for an account that charges minimum fees, and pays a good
interest rate. Be aware that term deposit accounts accrue interest differently
to standard savings accounts. It’s worthwhile doing the sums in the beginning,
before investing your hard earned cash.
Learning to live well within your means is another tip that most people
overlook. It’s amazing what you can temporarily do without, in order to get
together a deposit. Reducing some
expenditure on a few luxuries is more money in the bank, and more interest
earned.