Overcome interest rate challenges: Boost your deposit!

With interest rates rising again, monthly home loan repayments have gone up too. This has put the dream of owning property out of reach for some prospective buyers. But there's hope.

Deferring the dream for a year or two in order to save towards a larger deposit will decrease the amount you have to borrow, and the amount you pay in the long term.

What is a deposit? A deposit is usually 10% of your purchase price. It is paid to the transferring attorney, who manages it on your behalf until the property registration process is complete.

A deposit will:

• Enhance your affordability and increase the likelihood of bond approval.
• Give you leverage when negotiating a more favourable interest rate (due to reduced risk for the bank)
• Minimise the interest you'll pay over the duration of the loan.
• Reduce your monthly bond repayments.
• Enhance your attractiveness to sellers.
• Improve your negotiating power.

Prospective first-time homebuyers aiming to acquire a property valued at R1 million may be eligible for a 100% bond. If this is not the case, a 10% or R100 000 deposit is typically required.

Imagine you were to take the R1 million bond today, with interest rates at 11.75%. Without the deposit, your monthly instalment will be R10 837 but if you were to increase your deposit to 20% or R100 000, your monthly repayment will be R8 670. It can be done, and just imagine, over 20 years, how much you'll be saving.

How to save R100 000 in two years

Individuals who have yet to enter the property market often feel overwhelmed by the deposit amount necessary for a home loan. But you'll be astonished at how quickly the savings from temporary adjustments to lifestyle and spending habits can mount up. And what is two years of tightening your belt if it helps you enter the property market and significantly decreases your long-term bond repayments?

To add R100 000 to your deposit, you'll be aiming to save R50 000 per year over the next two years. That would require a monthly saving of approximately R4 200.

These ten changes to help you start saving for a larger deposit:

1. Investigate where you can cut expenses - items like cosmetics, cleaning supplies and grocery basics are good options. Compare prices on the shelves and always opt for the cheapest alternative.
2. When out shopping, only purchase necessities and focus on special offers - better still, use online shopping so you're not tempted in the aisles.
3. Savings - Put that R4 200 away at the beginning of each month rather than attempting to save what remains after expenses. Bank your savings in a 72-day call account that offers a higher interest rate as well as accessibility while discouraging impulsive withdrawals.
4. Homemade meals - aim for homemade dishes instead of ready-to-cook or takeaway meals.
5. Evaluate the need for two vehicles if you're part of a couple - consider selling one vehicle and opting for a scooter or downsizing to a single vehicle, especially if one or both of you work from home.
6. Insurance - is your insurance policy current regarding the value of assets such as vehicles and computers? Find out if your premiums can be lowered.
7. Is it necessary to take that next upgrade on your phone? - sticking with your current model and downgrading to the cheapest contract can save hundreds of rands a month. Could you join a cheaper gym or cancel your membership and take up running for the next two years instead?
8. Side hustle - could you start a side hustle, tutor over the weekends, or wait tables one or two nights a week? Think about what else you could do (or sell) to bring in extra money. Pay it straight into the savings account.
9. Rent - if you rent, consider temporarily downsizing to a smaller rental unit. This will reduce rental expenses while you save for your deposit. Keep in mind that this arrangement is temporary, and the ultimate goal is to move into one's own home.
10. More Savings- if you receive a bonus, monetary gift, or commission, keep 5% to spoil yourself, and pay the rest into your savings account.

Once you've bought your home, move your focus to paying off your bond as fast as possible. Ease up on the pressure to save by all means but keep some of those habits in place. The quicker you pay off your bond, the less you'll be paying in interest.