If you take out a R1,5 million home loan at the current interest rate, and do not put down a deposit, your monthly repayment will be R16,256.
But, if you are able to put down a deposit of R100,000 – which is 6,7% of the purchase price, your bond repayment will drop to R15,172 a month.
You will also end up paying the bank a total of R260,000 less over a 20-year term than you would without this deposit.
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It has always been said that buyers should aim to put down a 10% deposit on their first home, but over the years more people have been making use of zero-deposit home loans. This is because aspiring homeowners have either not had the financial capacity to save towards a deposit, or have not made this upfront payment a priority.
The good news, though, is that while banks continue to offer zero-deposit home loans, savvy buyers are prioritising deposits. Data from ooba Home Loans shows that the average deposit size grew from 7,5% of the purchase price in the first three months of the year to a sizeable 8,4% in the second quarter.
“This signals that homebuyers are utilising their deposits to minimise their exposure to the effects of the increased interest rates, and to ensure affordability of the properties they are purchasing,” says chief executive Rhys Dyer.
The average property purchase price recorded by ooba in Q2 2023 was R1,426,656, so using this value at the current interest rate of 11,75%, buyers who did not put down a deposit will be paying R15,461 a month on their bond repayments.
If, however, they put down a deposit of the average 8,4% – which equates to R119,839, their monthly repayment will be R14,162. That is a saving of R1,299 a month.
The total amount that buyers who did put down a deposit will pay back on their home loan over 20 years is R3,399m. On the other hand, buyers who did not put down a deposit will end up paying back R3,711m – a total of R312 000 more.
The data from ooba also reveals that first-time buyers in particular believe in the power of deposits, with these upfront payments accounting for 9,6% of the purchase price on average. This is a 15,2% increase year-on-year.
Dyer says the average purchase price recorded for these buyers in Q2 2023 was R1,120,173. Buyers who purchased for this amount and did not put down a deposit will be paying R12,139 a month on their home loans.
If, however, they put down the average first-time buyer deposit of 9,6%, which equates to R107 537, their bond repayment will be R10,974 – a total saving of R1,165 a month.
Overall though, the buyer who puts down this deposit will pay the bank R2,634m in total over 20 years, while the buyer who did not will end up paying R2,913m, which is R279 000 more.
Existing homeowners can also make savings
If you have already bought your home and feel like you have lost the opportunity to reduce your total repayment amount or repayment term, you are wrong. If you can make lump sum payments into your home loan account, you can make a huge difference to your pocket.
Tax filing season is here, so instead of splurging your refund on luxury items or even paying other types of debt, it would be a good idea to put it into your home loan.
For example:
If you have a R2m bond and have 20 years left to pay, your current monthly repayment is approximately R21,604. Your total repayment amount, with interest, is R5,202m.
If you pay R30,000 into your account as a once-off payment:
- Your repayment term will reduce to 18,88 years
- Your total repayment amount will reduce to R4,909m, a saving of R262,274
If you pay R20,000 into your account as a once-off payment:
- Your repayment term will reduce to 19,23 years
- Your total repayment amount will reduce to R5,003m, a saving of R179,014
If you pay R10,000 into your account as a once-off payment:
- Your repayment term will reduce to 19,61 years
- Your total repayment amount will reduce to R5,100m, a saving of R91,653
If you are not expecting a tax refund or any other lump sum of money, you can also reduce your repayment term and total amount you owe the bank by making additional payments each month. This will bring both totals down even more than a once-off lump sum payment would.
For example:
If you pay an extra R1,500 a month into your account for the duration of your term:
- Your repayment term will reduce to 15,95 years
- Your total repayment amount will reduce to R4,435m, a saving of R767,000
If you pay an extra R1,000 a month into your account for the duration of your term:
- Your total repayment term will reduce to 17,04 years
- Your total repayment amount will reduce to R4,637m, a saving of R564,490
Even if you can only pay an extra R500 a month into your account for the duration of your term:
- Your total repayment term will reduce to 18,36 years
- Your total repayment amount will reduce to R4,886m, a saving of R315,908