Five ways to save for a mortgage deposit

Saving up the money for a deposit on a house can be difficult in today’s economic climate, especially when you consider the transfer, attorney and bond fees that also have to come directly out of your pocket. That said, a sizeable deposit can make a world of difference to the long-term affordability of your home, so tightening your belt for a few months could be an extremely wise decision.

“Having capital available for a deposit affects your home loan in several ways,” says Tony Clarke, Managing Director of the Rawson Property Group. “Firstly, it shows the bank you are financially responsible, which lowers your risk profile. Secondly, it reduces the size of the bond you’ll need, which also decreases risk from the bank’s perspective. Thirdly, with a low risk profile you’ll have a better chance of securing finance at a favourable interest rate, which, in combination with the reduced loan amount, can drop the total interest you’ll pay over the life of your bond by hundreds of thousands of rand.”

In addition to the financial benefits, a deposit can also go a long way towards strengthening your offer to purchase, as sellers and estate agents see deposits as good indications of a buyer’s ability to secure a loan. 

“The actual amount of the deposit varies from sale to sale,” says Clarke, “and can be negotiated with the seller based on your financial outlook. This is often much easier to do with a pre-qualification certificate from a bond originator like Rawson Finance. At present, deposits are averaging at just over 9%, but were around 16% a year ago, so you can’t always take the standard 10% rule as a given.”

So how, exactly, does one save up anything from 9% to 16% of a home’s value? The answer is little by little, and step by step. Here are just a few ways to start the ball rolling.

We all need to eat, but convenience foods in South Africa are expensive, so spending a little more time in the kitchen can save you some serious cash. 

“Instead of grabbing ready-made meals, ordering in, or eating out, try cooking a few quick and simple meals at home,” suggests Clarke. “It might take 30 minutes out of your day, but the savings add up quickly – and its healthier too!”

It’s also a great idea to bring a packed lunch to work instead of forking out R40 to R60 every day. If you can also forgo that R20 morning cappuccino, you could save as much as R1800 a month on work-related food costs alone!

Credit cards and store accounts might make life easier, but they’re also a great way to spend more than you really should. If you find yourself giving into temptation and shopping for more than just the bare necessities, it might be better to close your accounts until your deposit is ready to go.

Your insurance premiums go up every year, but the value of a lot of insured items actually goes down as they get older. If you haven’t spoken to your insurance company in a while, it’s a good idea to give them a call and ask for a premium re-evaluation based on present day replacement costs.

“A lot of insurance companies will drop your rates significantly if you make it clear that you’re unhappy with your premiums – particularly for items like cars that devalue quickly as they age,” says Clarke. “Just be careful that they don’t drop your rates by increasing your excess – having a few comparative quotes on hand will help keep things in perspective.”

When your cellphone contract expires, it’s easy to be swayed by the idea of a shiny new handset and blindly sign on the dotted line for a contract that could well be more than you actually need to pay.

“With number portability, we have a lot more options at contract renewal time,” says Clarke, “and shopping around is always a good way to save money. Take a close look at your usage patterns, and decided whether you really need a new phone right away, and then find the most affordable contract that suits your needs from whichever service provider has the best offer.”

Good intentions can be costly, especially when it comes to gym memberships, and if you’re not actively engaged in a gym routine, you’re probably just throwing hundreds of rand a month down the drain.

“Even if you are gymming once or twice a week,” says Clarke, “choosing roads over a treadmill can save you a lot of money. There are all kinds of home fitness routines available online that don’t cost a cent.”

Those five tips alone could save you as much as R6100 a month, which would give you a 10% deposit on a R1 million home in just over a year. If you can cut back on more unnecessary expenses, that time could be reduced even further.

“Saving up isn’t a quick process, but it often shows us just how much money we waste on unnecessary things,” says Clarke. “A lot of people choose to continue their frugal habits after buying their home, and end up paying their bond off much faster than expected.”