Is a no-deposit mortgage a good idea?

[muppet]

More from Mary Holm.

Is a no-deposit mortgage a good idea?

Most people probably shouldn't take on a mortgage if they can't save at least a few thousand dollars for a deposit on a home.

Don't rely on a keen mortgage lender to assess your ability to service a loan. Make sure that you won't find yourself unable to meet mortgage payments and having to sell your house at a time that doesn't suit you.

If you do face a forced sale, you are not in a strong position to bargain. If it happens to be when house prices have fallen, in particular, you may well end up owing the bank more than you get for your house - possibly leading to bankruptcy. It's happened before and it will happen again.

Another negative is that 100 per cent mortgages usually include lender's mortgage insurance, which can raise the fees considerably. And the insurance protects the lender, not you.

A safer way is to find out, before you buy, roughly how much mortgage payments would be on the sort of house you might buy.

If it's, say, $1300 a month, and your rent is $600 a month, save the $700 difference for a year or two, and then use that money as your deposit. Then you will know you can probably cope with the mortgage.

http://www.nzherald.co.nz/section/12/story.cfm?c_id=12&objectid=10468200&pnum=0

[zackxx]

I tend to think Mary Holms advice isn't really geared for property investors. IMHO the less of our money and more of the banks we put into a property the greater our IRR and the better our cashflow/deposit postion toward another IP.

[SwissKiwi]

Yes I agree Zack - that's why I don't think it's really fair that she gets knocked rather a lot on this forum - when her advice is probably quite appropriate for the less financially literate or financially confident public.

[Julian]

I would be curious where can you get rent for $600/mth - that's less than $140 per week. Where I live you don't find hardly anything for less than about $350/wk (over $1,500/mth). Even if you could save $700/mth it represents just $8,400 saved after 12 months. If you are looking for a 20% deposit on a $300,000 house it will take over seven years to save it - and that's assuming the house prices don't rise in that period, but as we all know they could double in seven years.

In that case you could put down a 10% deposit on a $600,000 house and have monthly P&I payments (assume 9% interest over 30 years) of $4,345.00 plus rates, insurance, maintenance etc.

No wonder so many people resign themselves to a life of renting.

Julian

[zackxx]

yes it would be better if the figures were a bit more realistic however if one is sharing a flat with flatmates then maybe Mary's example would still hold although still a struggle to save that deposit.