100% home loans - to be, or not to be?

Deciding whether to apply for a 100% home loan is only one of the choices that you as a potential homeowner will have to make. However, it might be the most important one. The financial decisions that you make at the beginning of your bond application process will affect you for the duration of your mortgage. 

You might have already been advised that it is beneficial to take out a 100% home loan; other people may also have told you that saving up for a deposit is the preferable route. With advice being dished out from all corners, what exactly is the right decision? 

Let's have a look at your options. 

1) A 100% home loan explained

A 100% home loan is also known as a zero-deposit home loan and the name describes it perfectly. This type of home loan requires no deposit and you apply for the full amount that you are going to pay for the property you buy. 

Banks decide whether to grant you a full loan and this decision is determined by several factors. Firstly, they have a look at how healthy your credit score is. Secondly, they consider the value of the property. And lastly, they determine whether you can afford the monthly repayments of a full home loan (you will pay more when you opt for a 100% home loan). 

2) The pros and cons of a 100% home loan

One of the biggest advantages of applying for a 100% home loan is that you don't have to worry about saving up for a big deposit before buying a property. You can put all your extra cash into the home and modify it as you like. However, this also means that your mortgage payment is more per month as we previously mentioned. 

Let's say, for example, you buy a house for a million rand. With a 100% home loan, you would pay off that full amount including interest. At the current interest rate, you would pay back R10 492 per month over 20 years. This brings the total amount (including interest) you will pay back over 20 years to R2 518 583.

3) The pros and cons of putting down a deposit

On the other hand, you can put down a deposit if you have the means. The obvious downside to this is that you might have to save up and wait longer to buy property. It also means that you have less capital to repair or renovate the house if it is needed. 

However, many experts say that it is recommended to pay a deposit. A deposit shows that you are serious about buying which makes it more likely that your offer to purchase is accepted. A deposit also brings down your monthly repayment. If you put down a 10% deposit on a R1 000 000 bond then you bring the monthly amount down to R9 443. The total amount that you pay back at the end of 20 years is then R 2 266 593 - that's a whopping R251 990 cost-saving as opposed to a 100% home loan.

Final thoughts

Deciding on a 100% home loan or a deposit is entirely dependent on your financial interests and situation. If your goal is to save money in the long term and decrease your interest, a deposit is clearly the better option. However, if you don't have the capital means for a down payment, then a 100% loan still beats not buying a property at all.