To pay a deposit or not?

With the current market being what it is, banks have been forced to ask for a deposit.

Is this a good or bad thing?

The bottom-line is that you as the prospective property owner comes out on top when you pay a deposit and it doesn't matter if it's in a good or bad economic cycle.

Let me explain. When you pay a deposit, you create equity in your property and you then have a vested interest. The banks' see that you have something to lose and aren't as likely to just walk away from your bond repayments. This is where you start winning. You get bonds much easier, you get a better concession on your mortgage loan rate, lower monthly repayments and you save so much on interest over the term of your loan.

The reason why you win so much over the term of your loan is what Einstein called the 'Eighth Wonder of the World'.

Compound Interest or interest on interest.
What would you take? R 100 000 or one cent doubled for every day of the month?

I'll take the one cent and the reason?
Have a look:

Day one: 0.01
Day two: 0.02
Day three: 0.04
Day four: 0.08
Day five: 0.16
Day ten: 5.12 (This is where it starts getting interesting )
Day eleven: 10.24
Day twelve: 20.48
Day eighteen: 1310.72
Day nineteen: 2621.44
Day twenty: 5242.88 (Can you see where this is going? )
Day twenty-four: 83886.08
Day twenty-five: 167772.16
Day twenty-nine: 2684354.56
Day thirty: 5368709.12
Day thirty-one 10737418.24

Still want that R 100 000?

And that is what happens to your mortgage loan. For the first year or so, you are basically just paying back interest. Only after that do you really start decreasing your capital.

The less money you have to finance, the more you save in the long run.

Let me give you another example:

Let's say you finance R 500 000 over 20 years at an interest rate of 14%. Your monthly repayments will be R 6 217.60 and 6217.60 x 240 = R 1 492 224. The true cost of your home over 20 years.

WOW

Your property just cost you three times what the asking price was!

Now lets look at a 10% deposit.

R 450 000 over 20 years at an interest rate of 14%. Your monthly repayments will be R 5 595.84. 5595.84 x 240 = R 1 343 001.60
That's a difference of R 149 223.

Now let's say the banks give you a better rate because of your 10% deposit:

R 450 000 over 20 years at a rate of 13.75%. Your monthly repayments will be R 5 514.32. 5514.32 x 240 = R 1 323 436.80

That's a total saving of R 168 787.20

You more than trebled your 10% deposit over the term of your loan.

And believe me when I say, the larger the deposit the bigger the impact it makes!

Taking the stress out of property finance

My role here is to relieve you of some of the hassles of property finance.

I specialise in:
- New Ordinary Loans
- New Building Loans
- Further Advances (Ordinary & Building)
- Switches
- Debt Consolidation

I'm mobile and will come to a time and place convenient to you.