Pros and Cons of the First Home Loan Deposit Scheme

“Under this initiative, 27 lenders, including big four banks CBA and NAB, are allowing first home buyers to take out a mortgage with as little as 5 per cent deposit, without needing to pay lender’s mortgage insurance,” Rate City said.

“But buying a home with a 5 per cent deposit, as opposed to a 20 per cent deposit, can be more expensive.”

According to the group, a person buying a $500,000 property with a 5 per cent deposit, instead of a 20 per cent deposit, would need $75,000 less initially. But with a larger loan, their mortgage repayment would be $395 extra a month and they would pay $67,067 in extra interest to the bank over 30 years.

“This is based on taking out CBA’s basic home loan at a rate of 3.13 per cent for an owner-occupier paying principal and interest,” it explained. 

Sally Tindall, research director, added: “In these uncertain financial times, where unemployment is on the rise and property prices are on the decline, borrowing with just a 5 per cent deposit can be risky.”

“Falling property prices come with both opportunities and risks. People might find they don’t need to spend as much and their deposit, as a percentage of the property price, has actually gone up.

“However, there’s a risk that property prices will fall even further and people who buy with a wafer-thin deposit could find themselves in negative equity if they’re not careful,” she said.

Potential pros of the scheme, as highlighted by Rate City, are:

• Avoid lender’s mortgage insurance.
• Get into your home sooner.
• Stop paying rent.
• Prices could rise after you purchase your property.

Potential cons of the scheme, as highlighted by Rate City, are:

Tags:

• Latest
• Australia property market news roundup

Share