When you are getting a mortgage to buy your new home, it is important that you think carefully about the amount of deposit you will be putting down. Choosing the right amount can potentially help you save tens of thousands of pounds.
Should You Place a Big or Small Deposit?
According to figures released by the Bank of England, mortgages requiring smaller deposits have become increasingly widespread over the past few years. In 2016, about five percent of loans were offered at a loan-to-value ratio of 90 percent or more, up from 3.8 percent in the previous year. Getting a low-deposit mortgage can be tempting for home buyers, because it enables them to move into their new homes quickly. However, it may not be the best option in the long run.
The golden rule is to put down as big a deposit as possible. This is because a larger deposit will enable you to get a better mortgage rate, according to AAACreditGuide.com. Lenders will be willing to give you a more favourable rate because the higher your equity, the less risk they need to take if your home loses value. Paying a higher amount of deposit also means that you will have to pay lower monthly payments, which can make the financial obligations that come with your homeownership more manageable. Here are some things to consider when calculating your deposit.
Price of the Home and Possible Loan Amount
While it is best to place a larger deposit when you are taking out a mortgage, not everyone will be able to come up with as large a sum of money as they wish within a certain time frame. So, you may have to pay a smaller deposit instead. In order to determine how much is the right amount of deposit for your mortgage, the first thing you need to do is go to a property website to find out how much your desired home will cost. Then, use a mortgage calculator, which is available in home loan or real estate websites, to estimate how much a person with your salary can borrow.
Assistance from Broker
If you find that you are unable to borrow as much as you expected, you may have to aim for a cheaper property. It is a good idea to consult a broker before you try to get a mortgage. Most brokers will know where to get the best mortgage deals. If you calculated that you can borrow three times your salary, a broker may help you get up to five times your earnings.
Minimum Deposit and Extra Costs
Regardless of the amount you can borrow, you should make a point to put down at least 10 percent of the value of your desired home as deposit. Also, do not forget to factor in the extra costs such as solicitor’s fees, survey costs, and stamp duty.
A new home is a big investment. Make sure you research and plan your mortgage properly before you apply.