Better to have huge deposit or smaller loan?

CI on 21/09/2015 - 21:28
Last edited 22/09/2015 - 12:13

I am not sure myself what it is I am actually asking. As always will keep short.
But let's give it a go.
Hypothetical scenario:
$200k in cash
First home buyer.
Buy house for $450k.
Walk into bank to initiate master slave relationship.
Bank be like "here bro have $450k"
Now What do I do?
Do I be like
"Nah bro I only need to borrow $250k, with $200k deposit"
Or
"Yea bro give me $450k and here's $200k in offset account"

Edit 1: If someone went with option 2, would they tell the Master (bank/load provider) they are going to put $200k in the offset tomorrow? or keep that information sealed

Poll Options

  • 6
    Borrow $250k, deposit $200k
  • 34
    Borrow $450k, put $200k in offset
Financial

Comments

  • tabz on 21/09/2015 - 21:36
    +14

    20% deposit ($90k) so you don't have to pay LMI (Lenders Mortgage Insurance).

    Borrow 80% ($360k).. put remaining in an offset ($110k).

  • chumlee on 21/09/2015 - 21:49

    Why would you borrow more than you require?

    • Diji1 on 22/09/2015 - 09:25
      -1

      Have you ever heard of leveraging debt?

  • mick123 on 21/09/2015 - 21:55
    +1

    option 2, on the basis you are disciplined:
    more flexibility
    better for tax purposes if going to rent out later

  • imtahir7 on 21/09/2015 - 22:40

    if you dont mind me asking how long did it take you to save up 200k?

    id go with the first option. save $$ on interest.

    • subywagon on 22/09/2015 - 01:27
      +5

      'bout a week… these fiends be hungry for my product yo.

      • Diji1 on 22/09/2015 - 09:26
        +1

        Capt'n Chilli? Is that you?

    • CI on 22/09/2015 - 08:32

      Pablo Emilio Escobar Gaviria

  • MelBourne on 22/09/2015 - 02:04
    +2

    I would go with option 2, as long as you are disciplined, as mentioned in another post. But ensure you pay the 20% deposit to avoid Lenders Mortgage Insurance (which can be $5,000 to $12,000).

    It's effectively the same thing in some ways… You will pay the lesser interest amount, with interest being offset by the savings/offset account, But will grant you easy access to all that cash sitting in the offset account if you really need it.

    I would make it known to the banker/broker who is organising your loan that you intend to do this. They would prefer to organise as a high a loan as possible, as they will most likely get a higher commission. So letting then know you are purposefully applying for a higher loan and plan to offset it anyway with all that spare cash, might ensure they treat you with priority, favour you or just down right give you some sort of benefits or freebies.

  • noyesmaybeok on 22/09/2015 - 03:41

    Offset account for sure - you can withdraw the cash, invest it in shares (given interest is only ~4% nowadays, worth looking into), who knows. Point being it's sitting there to use anytime.

  • Geewhizz on 22/09/2015 - 05:59
    +1

    Smaller loan, smaller repayments. If the interest rates jump a couple of per cent will you comfortably be able to meet the repayments on the higher loan? Otherwise, yep, offset account. If worse comes to worst you'll have the extra cash there to cover higher repayments.

  • Davros on 22/09/2015 - 06:08
    -2

    "Nah" use some of the money you have to get "like" elocution lessons "Bro"

  • eatwell365 on 22/09/2015 - 07:55
    +2

    borrow 450k, 200k offset - no doubt.
    then treat yourself with some power tools, wife wants a dyson vacuum, then a Range Rover and a family holiday…and OMG.

  • OZB Al on 22/09/2015 - 08:47

    I would expect if you have 200,000 accessible you will be more likely to think you've got money and blow it on crap, if you feel like you don't have much money you will live frugally and pay off your loan faster.

    • RockyRaccoon on 22/09/2015 - 09:48
      +1

      But they have managed to save $200k so probably a little wiser when it comes to money

      This of couse assumes the funds didnt come from another bro!! :)

  • djones145 on 22/09/2015 - 09:13

    try to borrow 500k ( that's when they can give u slightly better rates) as long as its within 80% of value of house
    get an offset, and wack the money there (must been very strict and not blow the money!)
    or make early repayment of 100k (make sure ur loan allows that's)

    I was in the same position and did that

  • tomleonhart on 22/09/2015 - 10:36
    +2

    broker here.

    @re your edit. Why do you need to tell the agent your financial situation? As far as REA is concerned, they sell you the house, you can obtain finance to pay for it. End of story.

  • shadowarrior on 22/09/2015 - 12:10

    -Borrow 80%, avoid LMI
    -Keep some $ in hand for expenses. (Solicitor/Rates/Upgrades/Out of contract installs/Variations/etc)
    -Deposit rest in offset account.(you can always withdraw from offset account for the expenses listed in point 2)

  • coolhead on 22/09/2015 - 12:20
    -1

    my 2 censt… forget about paying 200k deposit..

    pay 20% and avoid LMI…
    If you are not planning to rent out this house and you live in then its good to reduce your loan as and when u can..
    so have an auto debit of 500-1000 per month towards loan… hopefully you are getting a redraw account so this will be asseccible anyways.. but if your ultimate aim to finish off your loan then this is a good option…

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