One big part of taking out a mortgage is the deposit. Most lenders will want borrowers to put down a payment towards the cost of the home and this is normally a percentage, perhaps 5% or 10% on average. It can be tempting to therefore just save the minimum that you have to or only pay the minimum and use anything else you have saved to pay for other things. However, there are plenty of advantages of having a larger deposit and so it can be well worth saving harder.
- Can borrow less – the main reason for having a large deposit is that less money will need to be borrowed when buying the home. Some people will use it as a way to buy a larger home but this may not be sensible. By borrowing less money, it will mean that you will be able to borrow less and therefore either have smaller repayments or a shorter term for the mortgage and this will put you at a really big financial advantage. The amount of interest that we pay in total for mortgages is massive as we borrow so much and repay over such a long period and so anything that will reduce this will have a big impact. It can be well worth doing the calculations for yourself – you can find mortgage calculators on many websites. You will be able to work out how much you will save over the term of the mortgage if you make a larger deposit. This can help you to decide whether saving more money is worth it and therefore whether saving harder is worth it too.
- Buy a better home – as an alternative you could use a bigger deposit to allow you to buy a better home. As a deposit is a percentage of the sale price, having a larger deposit can, in theory, allow you to buy a more expensive home. Of course, it is not only the deposit that will determine how much money you can borrow but also the income that will be coming in to the home which will indicate how capable the household is at repaying the mortgage. It is a step in the right direction of buying a more expensive home though and so this could make it worthwhile.
- Have extra money to use as savings – If you do save too much money then it can be a good thing as if you pay down most of it as a deposit you will have some left. You can put this into your savings account and you will have it as a backup. This means that you will be able to use it if you are in the situation where you need extra money. This could be to pay for costs of the move, such as removal fees or redecoration or on a more long-term level to help you if you are in a situation where you are finding mortgage repayments difficult. It always feels good to know that you have some money behind you, just in case you need it. You may therefore feel that this will be a goal that you will try as hard as you can to stick to so that you have some savings ready to help you out when needed.
- Helps promote good habits for future– having to save hard before buying a home can promote good habits for later in life. Making sure that you are careful with money and that you have some savings behind you will give anyone some confidence in their financial status and therefore can be a sensible thing to do. You may have learned some things such as how to budget, where to find items that are good value for money and how to make sure that every purchase you make is necessary. These lessons can be used again in the future. You may decide to always continue with them or to just remember then so that if you are in a situation where you are struggling financially you can fall back on them.
So, there are a great number of good reasons why saving hard before you get a mortgage is worth it. At the time, it can feel pretty burdensome, when you have to go without things that you want, constantly think about how much you are spending, checking prices and things like that. However, what you can gain from doing this can be really useful. Not only can it help you in the short term so that you can either get a smaller mortgage or get a larger house but it could also help you to have more savings in the future. Getting into these useful habits could also mean that you have a more financially secure future which can be useful for everyone.