Purchasing a property can be one of the most important financial decisions you'll make, and if this is done via a mortgage bond, you want to do your best to minimise the loan as well as save on interest.
One of the best ways to do this is through putting down a deposit.
A deposit can:
- Significantly improve the chances of getting a bond application approved
- Literally knock down a few years of your overall payment
- Save you thousands or even hundreds of thousands of rands in interest rates
- Put you in a better position to negotiate for a lower interest rate.
Banks can ask for deposits of anything from 10 to 20 percent of the purchase price. However, even if you get a 100 percent bank loan approved, it is still recommended that you put down a deposit.
Using Private Property's bond calculator, the following diagram illustrates just how much of a difference a 10 percent deposit makes on a townhouse costing R890 000, with an interest rate of 10.25 percent over a 20-year period.
Notably, other factors that influence the total loan repayment include:
- A strong credit profile. Banks consider this when deciding on the interest rate they will offer you on a loan.
- The term of the loan. You are most likely to pay more on a 30-year loan term, compared to a 20-year loan term, with the same prime interest rate.
"Just remember that it is best to ensure that your deposit be made up from savings and not from additional loans, as this would mean that you need to pay off that loan at the same time as you are paying off the home loan, and this will put pressure on your monthly expenses," said Steven Barker, the head of home loans at Standard Bank.