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6 Reasons why a deposit is important when buying property

6 Reasons why a deposit is important when buying property

Posted In: Money Talk

Buying a home is one of the best long-term investments you will ever make. However, taking the first step to make a purchase can sometimes be daunting and even intimidating, more so now with the current unprecedent times we live in.

South Africa’s interest rate is at its lowest level in over 50 years, creating great investment opportunities particularly for first time property buyers to secure their dream homes. The interest rate cuts this year, which brought the prime interest rate down to 7%, has made it easier for aspiring home owners to afford a place of their own.

If you are able to, why not take advantage of buying a home, rather than renting? Here are six reason you need to pay a deposit when buying a home

  1. It demonstrates commitment towards buying the property

A deposit demonstrates that you have the financial means to make the purchase and are comfortable to take on some level of risk until the deal closes. It’s also an excellent way to further prove that you are ready to take on the costs that come with home ownership.

  1. It increases the strength of an offer or the chances of having the offer accepted

Paying a deposit will also improve your chances of having your home loan application approved by the bank and will place you in a better position to negotiate for  more favourable terms.

  1. It reduces the risk of lending

The benefit of paying a deposit when applying for  home finance is that you are seen as providing equity into the deal thus reducing the bond amount required. This views the deal more positively by the bank and will also reduce  your instalment as you are borrowing a lower amount. By reducing the amount you need in a loan, you are also reducing the amount of home loan interest you pay over time.

  1. It increases your ability to negotiate a better rate

Putting down a deposit will not only improve the chances of having a  home loan application approved, but will also place you in a better position to negotiate for a more favourable interest rate.

  1. It allows saving on interest over the term of the loan and lowers monthly repayments

The interest rates are currently at all time record lows. Putting down a deposit for a home loan will further reduce the interest rate and monthly instalments allowing you to repay faster before the term completes . When paying a deposit, the overall value of your loan will be smaller meaning that you will be able to pay it back sooner.

  1. Saving for a deposit mentally prepares you for a home loan repayment

Saving for a deposit sets the tone of what’s to come. It is a great practice run for  the commitment that will be required to ensure that clients have the required funds and mindset to fulfill the obligations of monthly repayments in the long term.

Words: Mfundo Mabaso, FNB home finance growth head.

Source: Supplied

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