home loans - Home Loan Deposits FAQs - x inc finance

Home Loan Deposits - answers to common questions

1. How does No deposit loan work and who is suitable for No deposit loans?
2. What are the pros and cons of No deposit loans?
3. Do I pay a high interest rate on no-deposit loans?
4. What are Deposit Bonds?
5. Why do People use deposit bonds?

1. How does No Deposit loan work and who is suitable for No Deposit loans?

Normally you would need at least a 5% deposit to get a home loan approved and about another 5% for your costs. With 100% home loans, provided you pass slightly tougher approval rules, lenders will waive the need for you to have a deposit and you just need to cover your costs. Because you need to cover costs, this type of loan is really not for someone who has no money at all and you need to know that lenders generally apply a slightly higher debt servicing ratio to no deposit home loans. These home loans are ideal for people with a good income and credit history, who, for different reasons, may be because of high rent, have not been able to save for a deposit. No-deposit home loans are great for first home buyers because they help people enter the housing market before prices rise beyond their reach. more about how no deposit home loans work

2. What are the pros and cons of No deposit loans

No deposit loans gives you leverage to buy property sooner, as you don't have to wait until you save a 5% deposit. They often come with features such as additional repayments and redraw. No deposit home loans have stricter lending criteria and approval is harder. These loans are also limited to certain types of properties and in particular locations. You'll also have to either pay a higher interest rate or pay more mortgage insurance.  You should also be aware that in essence you're borrowing more money so you'll end up paying more interest in the long term. more about the pros and cons of no deposit home loans

3. Do I pay a high interest rate on no-deposit loans?

Different home loan products have different pricing structures, so you will need to find the one which works best for you. Depending on which lender and loan you choose, the interest rate be even be lower then the lender's standard variable rate. You will however definitely have to pay lenders' mortgage insurance. more about the interest rate on no-deposit home loans

4. What are Deposit Bonds?

Deposit bonds are an alternative to a cash deposit. They are effectively a guarantee to the vendor equal to the amount of deposit required and are a cash deposit substitute between signing the contract and settlement of the property. Deposit bonds can be issued for all or part of a deposit, but are usually 10% of the deposit. For example, if a 10% deposit on a $500,000 property is $50,000, a deposit bond will cost you $600. more about deposit bonds

5. Why do People use deposit bonds?

There are a number of reasons, but the main reason is that cash for the 10%, or even 5%, deposit required to enter into a contract on another property is often tied up in other properties or investments.  Also:

• Your savings remain intact, continuing to earn interest.
• You can avoid the expense and time delays involved in bridging finance.
• You can purchase 'off the plan' residential properties which typically have longer settlement times.
• You can use a Deposit Bond at Auction.
• Deposit Bonds are generally available anywhere up to 4 years.

more about deposit bonds

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