Choosing between a smaller deposit on a cheaper property or a 5% deposit on a more expensive one involves assessing your budget, long-term goals, job security, emergency fund, interest rates, property market, and location. Seek expert guidance for a decision aligned with financial goals.
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“After some HUGE financial setbacks in 2020 (we worked in tourism…fun year!) and then the crazy rise in prices, we’re finally in a position to consider buying somewhere. We have about $42k combined from our Kiwisavers, which we’re aware isn’t heaps as we were overseas for several years and then had a period of not working, but it’s enough for a smaller deposit. I’m pushing for us to go for a lower priced and, therefore, smaller/not as nice property that we could make a 9/10% deposit on, whereas my husband is pushing for us to get a bigger/nicer place using the scheme to buy with 5%. This is still a purely theoretical discussion, but we’re sick of pouring rent down the drain.”
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The choice between making a higher deposit on a lower-priced property or a 5% deposit on a bigger place using the Kiwisaver scheme hinges on several key considerations.
First and foremost, the deposit is only one part of the puzzle. You still need to afford the monthly payments on your mortgage. Assess your budget and overall affordability. Calculate how each option impacts your monthly expenses and ensure you can comfortably manage mortgage payments and other property-related costs.
Additionally, think about your long-term goals. Are you looking for a permanent residence or a stepping stone? Your decision should align with your 5-10 year plans. Considering job security and career prospects as a stable financial future is crucial. You should also maintain a sufficient emergency fund and down payment savings to cover unexpected expenses.
Keep an eye on mortgage interest rates, as a smaller down payment may result in a higher interest rate. Assess whether a lower-priced property in a specific area meets your lifestyle and needs.
The current state of the property market and location are also vital factors. A smaller deposit on a larger house will mean more leverage, which may accelerate or decelerate wealth building, depending on how the property market performs.
In summary, this decision is personal and requires a thorough evaluation of your financial situation, long-term objectives, and local real estate market conditions. Discuss your priorities with your spouse and consult with financial advisors or mortgage experts to receive tailored guidance. Your choice should align with your financial goals and lifestyle while ensuring you’re comfortable with your decision.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The information in this post is only general in nature and is not personalised financial advice. Please contact us if you want financial advice.
