As a Mortgage Broker in Tauranga, we understand that deciding whether to purchase a home with a little deposit or waiting a few years to save up a larger deposit can be a crucial decision for many first-time home buyers. Waiting to save up a larger deposit may cause you to lose out on your preferred property or cause property prices to rise to a level that you are no longer able to afford, even though low deposit financing may result in additional costs or higher interest rates. Here are some factors to think about when deciding whether to save a larger deposit or go for low deposit loans.
Evaluating the Possibilities
As a first-time buyer, you must weigh two crucial variables when choosing between purchasing a first home with a low deposit – a deposit of less than 20% – or delaying to save a little more:
How much more you might have to pay in high interest rates or low equity fees.
How the real estate market is doing and whether home prices are increasing or decreasing quickly or steadily.
Low equity fees and low equity margins: what are they?
Lenders charge borrowers who have a deposit of less than 20% modest equity fees and low equity margins. A low equity fee (LEF) is a one-time cost that is determined by the amount of your mortgage and the size of your down payment. The borrower has two options: pay it in full up front or finance it alongside the mortgage and pay it off over time. Keep in mind that if you combine it with your mortgage, the LEF will accrue interest charges over the course of the loan, raising the cost.
If your deposit is less than 20%, your lender will charge you a low equity margin (LEM), which is an additional interest rate percentage. Unless your loan-to-value ratio drops to less than 80%, the LEM will still be in effect. Pay off your mortgage as soon as you can to bring your loan-to-value ratio under 80% if you want the margin to be waived.
How is the real estate market doing?
How the real estate market is doing and the prognosis for the economy in the future are two more crucial factors to take into account when choosing between buying now and waiting. Speaking with Best Mortgages can help you make a well-informed decision on whether to buy now or wait.
Buying a home sooner and with a smaller down payment makes financial sense if house prices are rising at the same rate they have been for the past several years. This is because you will continuously have to alter how much your 20% down will be in a rising-price environment. Similarly, if home prices are declining, entering the real estate market earlier could help you score a deal. The New Zealand real estate market appears to have changed after the pandemic, as the Real Estate Institute of New Zealand stated that house prices had fallen nationwide on an annual basis in December 2022.
Is now the ideal moment to purchase?
If you’re a first-time house buyer in New Zealand tossing up between buying now with a little deposit or holding off to save a little more, speaking with Best Mortgages can help you decide which choice is ideal for you. As a trusted Mortgage Broker in Tauranga, we have the experience and expertise to guide you through the process, whether you’re a First Home Buyer or looking to Refinance.