Save A Bigger Deposit Or Pay More On Your Homeowner Loan
It is a well known fact that if someone is applying for a mortgage or home owner loan, the larger deposit they have managed to save up, then the better deal they are likely to get on their loan.
Apart from the fact that a borrower with a larger deposit will obviously only require a smaller loan, therefore saving interest from the outset, a lower loan to value ratio will create a lower risk level for the bank or building society and therefore they are able to offer a more competitive rate of interest and in many cases, a lower administration or arrangement fee.
But a recent survey of the home owner loan market by mform.co.uk has revealed just how much of a difference a larger deposit can make to a borrowers loan repayments.
According to the research, a person with only a small deposit is likely to pay somewhere in the region of £2,230 extra on their loan, every year, than someone who has managed to save up a deposit of around 40 per cent of the purchase price.
The survey has shown that the best tracker rate on a home owner loan with a loan to value ratio of 60 per cent is now 3.99 per cent, but at a loan to value ratio of 80 per cent this increases to 5.99 per cent. If a borrower only has a 10 per cent deposit, then there are no tracker rates available and the best fixed rate would be 6.45 per cent. For some one with a typical home owner loan of £150,000, this can make a difference of £2,230 each year in their repayments.
A spokesman for mform.co.uk said “the mortgage market is entirely back to normal as long as you have a deposit of 40 per cent which is OK for some re-mortgagers, but of course that is a long way from normal and doesn’t help the housing market as by definition to move up to larger properties, families need to stretch their borrowing.
It is encouraging that there are good deals out there but disappointing that the choice is reduced for those with smaller deposits who will typically be first time buyers or those who have bought in recent years and have not seen a significant rise in their home value.”
