Saving for a home loan deposit

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fdaniels

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I was once again running some numbers this evening when I ran into a mental wall. How long does it really take to save for a home loan deposit? Lets say I would like to purchase a home worth R1 million and decide to save for a 30% deposit. Lets assume that it takes me 5 years to save the R300k. Here is the problem, 4 years later that home no longer costs R1 million. :wtf: This means that the deposit will be worth even less. How do I estimate the amount of money I will need in 5 years time for a x% deposit. *sigh*

Now, I have simplified matters by not looking at the interest accrued on the deposits over time. So what is the deal? Do most people invest the money in something like a money marks or similar investment vehicle? How long does the average person save for a deposit? Also I was working on a single income budget, I guess that dual income families will be able to save up faster.
 
What you probably would need to do is keep an eye out on the house price fluctuations and on the inflation rate and adjust your savings accordingly. So if house prices increase roughly by 10-20% every year you would have to increase your savings by that much every year. You would probably have to make a similar adjustment for inflation.
 
The theory is that your salary will increase with inflation and therefore you can save more as the price of the house increases.
So, calculate based on current values and then give you boss heaps of demands for inflation matching increases as inflation rises.
 
I think that the banks have relaxed the need for a 30% deposit .Consult your bank and see what the new requirements are. Hope this helps.
 
SSurfer said:
What you probably would need to do is keep an eye out on the house price fluctuations and on the inflation rate and adjust your savings accordingly. So if house prices increase roughly by 10-20% every year you would have to increase your savings by that much every year. You would probably have to make a similar adjustment for inflation.
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Good idea.

davemc said:
The theory is that your salary will increase with inflation and therefore you can save more as the price of the house increases.
So, calculate based on current values and then give you boss heaps of demands for inflation matching increases as inflation rises.
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This is something that I had not considered. Though I have a feeling that the pace of the increases do not match property appreciation. Though it will certainly aid the process.

Fuzzbox said:
I think that the banks have relaxed the need for a 30% deposit .Consult your bank and see what the new requirements are. Hope this helps.
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The 30% deposit is by choice. In my 5 year plan I will be able to save that much if I continue my current lifestyle as I will finish paying my debts and pay for some big expenses (including a wedding :D ).
 
While saving a deposit is admirable you have to monitor the market. If prices start to escalate faster than inflation again you're better off buying rather than continuing to try to save.
 
I am in the same situation as you, but I think I am just going to take the money I have and buy and pay of more than my homeloan a month.
 
Banks are doing 90% loans again. Try nedbank, for example.

I know its better to put down more, but seriously, how many people have R100k lying around. Oh and dont forget, add another R50k for the lawyers etc etc. I just bought for R1mil, had to scrounge around for R150k.

A 1mil house has about R50k in registration costs (serious rip-off). If you under 1 mil, then you pay alot less.
 
fdaniels said:
Lets say I would like to purchase a home worth R1 million and decide to save for a 30% deposit.
Click to expand...

fdaniels said:
Lets assume that it takes me 5 years to save the R300k. Here is the problem, 4 years later that home no longer costs R1 million.
Click to expand...

fdaniels said:
I have simplified matters by not looking at the interest accrued on the deposits over time
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I know you've simplified, so I'll do the same.

R300,000.00 over 5 years is R5,000.00pm. If you simply plonk this into a bank account, you'll have over R340,000.00 after 5 years.

As was mentioned earlier, we assume your salary is going up too - so you're saving more. By the 5th year you should be saving about R7,000pm, meaning after 5 years you'll have R500,000.00
 
Hmmm, good point Dolby. I reckon that the 500k will most likely be equivalent to 300k today. :D
 
silly question : would it not be the same if you just take a 100% bond and pay extra every month ie if bond repayment = R1000 the pay R2000 etc

btw banks are offering 100% again ...
 
ryu said:
silly question : would it not be the same if you just take a 100% bond and pay extra every month ie if bond repayment = R1000 the pay R2000 etc

btw banks are offering 100% again ...
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No, not quite. Banks are evil. They will charge you more interest to offset their risk. A high interest rate will kill your repayments and cost you megabucks over the long run.

hyperian said:
Why not invest your deposit? It will offset inflation at the very least (although you might have to pay tax on the interest you earn if its over R19k or something around that mark).
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Yep, I was thinking about doing that. Considering putting my money in a money market account for a while, then something more rigid as I get more liquid cash. I am busy researching investment vehicles at the moment. Basically I would like a small lumpsum liquid for the unknown things in life and invest the rest in something with a better interest rate. Preferable something that allows me to increase my deposits over time.
 
fdaniels said:
No, not quite. Banks are evil. They will charge you more interest to offset their risk. A high interest rate will kill your repayments and cost you megabucks over the long run.
Click to expand...
The difference might not be that big. The other side of the coin is that they'll usually want to charge a higher interest rate for a smaller loan.
 
fdaniels said:
I was once again running some numbers this evening when I ran into a mental wall. How long does it really take to save for a home loan deposit? Lets say I would like to purchase a home worth R1 million and decide to save for a 30% deposit. Lets assume that it takes me 5 years to save the R300k. Here is the problem, 4 years later that home no longer costs R1 million. :wtf: This means that the deposit will be worth even less. How do I estimate the amount of money I will need in 5 years time for a x% deposit. *sigh*

Now, I have simplified matters by not looking at the interest accrued on the deposits over time. So what is the deal? Do most people invest the money in something like a money marks or similar investment vehicle? How long does the average person save for a deposit? Also I was working on a single income budget, I guess that dual income families will be able to save up faster.
Click to expand...

If you just roughly assume price will increase 7% per year, it would be 40% more expensive in 5 years. So you'll need R300k * 1.40 = R420k.

You probably would also get interest on the money you're saving up, so you can take that into account as well.
 
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