For prospective first home buyers who have been keeping an eye on interest rates it would be clear that now is a good time to have a mortgage. Variable and fixed rates are consistently down around the 4 per cent mark and the prospect of another cash rate cut has borrowers excited.
This is good news for a lot of people but for those who don’t have their deposit saved and ready to go it can also come with a lot of pressure. If you’re keen to get in to the mortgage market while rates are working in the borrower’s favour here are some hacks to grow your deposit fast.
High interest savings accounts
While this may seem like an obvious strategy, it is surprising how many Aussies do not take advantage of high interest savings accounts. Even though interest rates on savings are low at the moment when compared to historical figures, there’s still money to be earnt with no effort on your part. By leaving your lump sum in a savings account with the Big Four at the advertised rate, as opposed to switching to the highest rate account on the market, you’re missing out on free cash that can be put towards your deposit.
Another great hack is calling your bank and letting them know you’re saving for a deposit. Many institutions will be happy to discuss increased interest rates to keep your business if they think you may take your money elsewhere.
If you do choose to move your cash to a higher earning account, make sure that the attractive interest rate doesn’t have an end date or unrealistic conditions for your circumstances. Some accounts may require regular monthly deposits of a certain amount or may revert to a low rate after a couple of months. Keep an eye out for these sorts of terms and conditions to ensure you really are getting a good deal.
Reducing current housing costs
An obvious way to start pocketing cash fast is to reduce housing costs for savers who currently rent. It may not be an option for everyone to move in with a family member or friend but if it’s available to you then you can start saving hundreds of extra dollars a month. Putting this money directly into a high interest savings account from your pay packet will remove the temptation to spend money that you wouldn’t have had anyway.
If the thought of moving back home is too much to bear, then taking on a housemate may be a good way of halving current living expenses. With your rent and bills split down the middle, your savings should see an immediate boost.
If you do live at home already then the money you can make downsizing on spending probably isn’t as drastic but there is always a disposable expense that can be cut. Finding inventive ways to make money with your living space may also be an option (depending on how adventurous your family may be and how much work you’re prepared to do). If you’re living in a funky inner city area, and have a spare room in the family home, you can earn around $100 a night by listing it on sites such as Airbnb.com.
Forget the big deposit all together
Here is the final and riskiest of the deposit hacks; borrowing with a minimal deposit. This strategy is risky because it will limit the amount you can borrow, will mean you incur a hefty lender’s mortgage insurance bill and may mean that you’re not financially ready to handle a mortgage. Even so, if you think this is still the best way forward for you, there are many lenders offering loans to borrowers with a 5 per cent deposit. Using a home loan calculator to figure out if you’ll be able to keep up with the monthly repayments before applying for this sort of home loan is a must.
Another option, for those with parents who are willing and able, is to look into having a guarantor on your home loan. Having a parent go guarantor on your loan will mean that the equity in their home will be used in place of a deposit. This is a serious responsibility that can have major repercussions if you default on your home loan so talk this one through with your parents before committing to anything.