Here’s how even a small deposit can mean big savings

Here’s how even a small deposit can mean big savings

In today’s real estate market, affordability is top of mind for most homebuyers. And one of the most effective ways to reduce the long-term cost of homeownership is by paying a deposit - even a relatively small one – when applying for a bond.

This is especially important for first-time buyers, according to Stephen Whitcombe, MD of the FIRZT Realty group, who says that while most will focus on whether they can afford the monthly repayments on a home loan, far fewer will work out that putting down a deposit will not only reduce the amount you need to borrow and your monthly home loan repayments, but also the amount of interest you’ll pay over the life of the loan.

“In fact, paying a deposit when you buy a home is one of the smartest financial moves you can make, as illustrated in the table below, which is based on the example of a home priced at R1,2m (the current average price being paid by first-time buyers) and a 20-year home loan at the current prime interest rate of 10.75%.”

Comparison Table: Total Interest Saved by Paying a Deposit

*Monthly repayments are minimum estimates calculated using standard amortisation formulas and rounded to the nearest rand.

Source: FIRZT Realty

This shows, he notes, that even a 5% deposit (R60 000) would save you R85 000 in interest over the life of this home loan, while a 15% deposit would save you R255 600 in interest – and at the same time slash your monthly bond instalment by almost R2000.

“In addition, paying a deposit will always improve your chances of home loan approval, because the banks like to see that you are prepared to commit some of your own money to your home purchase. For this reason, there is also a good chance that you will be able to negotiate a preferential rate on your home loan – especially if you apply through a mortgage originator like BetterBond.

“So, while it might take a bit more time and planning to save up for a deposit before you set out to buy your first home, the long-term benefits are clear: You will have equity in your home from the start, reduce the strain on your finances in the early years of homeownership, pay off your home faster and cut many thousands of rands off the total cost of the property.”

Meanwhile, says Whitcombe, the benefits of paying a deposit should also be noted by repeat buyers, and persuade them to put a significant portion of their proceeds on any home sale towards a deposit on their next home.

“It can be very temping to ‘cash out’ when you sell a property and use all the proceeds for something else, especially if you are downsizing to a less expensive property, because your home loan and monthly repayment will be lower in any case. However, you’ll thank yourself for using at least some of the proceeds as a deposit when you are able to pay your new home off more quickly and save a large amount of interest.  

“On the other hand, putting down a deposit can also take a lot of the financial strain out of upgrading to a more expensive property. So if you’re currently house-hunting or preparing to apply for a bond, we strongly suggest that you first talk to a mortgage originator about how much you can afford to pay as a deposit, and how that might affect your home loan application – and your future finances.”

Issued by FIRZT Realty

For media inquiries contact

Stephen Whitcombe on

082 412 2949

Or visit www.firzt.co.za

About FIRZT Realty 

Established in 2003, FIRZT Realty initially focused on residential real estate, but has since expanded to offer a broad range of services in both the residential and commercial property sectors, including sales, rentals, auctions and property management.