A 10% deposit can get you into a home, but a few early mistakes can cost you thousands. If you're buying in Ashmore, here's what to watch for.
Ashmore is a Gold Coast suburb south-west of Southport, with a TAFE Queensland campus and the Ashmore City Shopping Centre. It's a spot plenty of people want to settle in. Getting the loan structure right from day one matters just as much as finding the house.
What does a 10% deposit mean for your home loan?
A 10% deposit means you borrow up to 90% of the property's value, so your loan to value ratio (LVR) is 90%. That puts you above the 80% line where lenders usually start asking for extra protection.
Lenders look at your loan more closely at this level. They check your income, your spending and your savings history. Before you fall in love with a place, use our borrowing capacity calculator to see a rough range. If this is your first purchase, our first home buyers guide covers the first home loan basics in more depth.
Lenders mortgage insurance: the cost buyers forget
Lenders mortgage insurance (LMI) is usually charged when you borrow more than 80% of the property's value, so a 10% deposit will often trigger it. Policies vary between lenders, insurers and schemes.
LMI protects the lender, not you. If you can't repay and the sale doesn't clear the debt, you can still owe the shortfall. The premium depends on the lender, your loan amount and your deposit size. Some lenders let you pay it upfront, while others let you add it to the loan.
Adding it to the loan keeps your cash in the bank. The trade-off is that you then pay interest on that extra amount for as long as it sits in the loan. Ask for an LMI quote early, because it changes how much you need on settlement day.
A guarantor, usually a family member who uses the equity in their own home, can sometimes cover the shortfall so LMI isn't needed. The risk is that the guarantor becomes responsible for part of your debt if things go wrong, and it can affect their own borrowing power.
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Book a chat with a Finance and Mortgage Broker at digilend today.
Interest only vs principal and interest: the repayment gap
An interest-only loan has lower repayments at the start, but you don't reduce the loan, and the repayments jump when the interest-only period ends. Principal and interest repayments cost more each month but pay the debt down from the start.
Here's an illustrative example using a rate of 6.75% p.a. on every $100,000 borrowed. Consider a buyer who's stretching to afford their first place and wants lower repayments. Interest only costs about $562.50 a month for each $100,000. Principal and interest over 30 years costs about $648.60. That means interest only is roughly $86 a month less than principal and interest for each $100,000 borrowed.
Now follow it through. Say they choose five years interest only. After that the loan reverts to principal and interest over the remaining 25 years, and the repayment rises to about $691 a month for each $100,000. The balance is still the full $100,000 at that point, so they've paid five years of interest and cut none of the debt.
In a scenario like this, the buyer decides the short-term saving isn't worth the later jump. They go with principal and interest and use the monthly gap between the two options as a buffer. Actual rates vary by lender and deposit size, so run your own numbers through our mortgage repayment calculator.
Is an offset account worth it on a 90% LVR loan?
An offset account can be worth it if you'll keep real savings in it, because the balance reduces the loan amount that interest is charged on. If you rarely hold cash, it may not earn its keep.
A linked offset account sits beside your loan. The more you keep in it, the less interest you pay. It also leaves your savings available, which is handy when you're buying with a smaller deposit and want a cash buffer for repairs or moving costs.
The trade-off is that loans with an offset account can carry a higher rate or an annual package fee, depending on the lender. Compare the total cost of the loan against the interest you'd realistically save. That comparison is part of working out which home loan products suit you, and our home loans page outlines the options we can compare.
Why get pre-approval before you inspect homes in Ashmore?
Home loan pre-approval gives you an indication of how much a lender may let you borrow, so you can shop within a realistic range. It isn't a final offer, and the lender will still assess the property and your circumstances before formal approval.
With a 10% deposit, pre-approval is also the time to ask about LMI and which lenders suit your situation. Knowing this before an auction or offer means you won't have to scramble if the numbers change. If you'd like local help, our Ashmore team can walk you through it.
Most home loan applications go more smoothly when your payslips, statements and savings history are ready to go, so start gathering them early.
Don't treat the cheapest-looking rate as the whole story
A lower advertised rate doesn't always mean a lower total cost. Fees, LMI, offset access and loan features all change what you pay.
When you compare lenders, look at the full cost of the loan with a 90% LVR, not just the headline rate. A broker can compare options from a range of lenders and show you how each one affects your repayments.
Call one of our team or book an appointment at a time that works for you, and we'll map out a 10% deposit plan for your Ashmore purchase.
Frequently Asked Questions
Do I need LMI with a 10% deposit?
LMI is usually charged when you borrow more than 80% of the property's value, so a 10% deposit will often need it. Policies differ between lenders, so ask for a quote early.
Is interest only a good idea for a 10% deposit buyer?
Interest only gives lower repayments at first, but you don't reduce the loan during that period. When it ends, repayments rise because the same balance is repaid over a shorter remaining term.
Is an offset account worth it with a small deposit?
It can be if you'll keep savings in it, because the balance reduces the loan amount that interest is charged on. Check whether the loan has a higher rate or annual fee to get that feature.
Should I get pre-approval before looking at homes in Ashmore?
Yes, it gives you an indication of how much a lender may lend so you can shop within a realistic range. It isn't a final approval, as the lender will still assess the property and your circumstances.
