Save For A Deposit or Pay Personal Loan?

[Rosa]

Hi andie_pandie
My family and I have finally paid off our credit card and are now wondering what to do with our excess money. Would it be wiser to save for a deposit for our home loan or pay off our personal loan first? Thanks

[andie_pandie]

Hi Rosa

Congratulations on paying off your credit card and also having the good forsight to put the money that was being used for the credit card back into a worthwhile purpose rather than wasting it.

I can't recommend what is the best option as it really is up to you. If you are a First Home Buyer and are eligible then you will have access to $7000 that may help when it comes to part of a deposit. Also if you are a first home buyer in Qld then you will not have government stamp duty up to a $300K purchase.

If you choose to save for a higher deposit rather than putting your money directly into your personal loan then you need to look at putting the money in a high interest earning bank account and there are plenty of these around now to maximise your savings.

The more deposit you have the less Mortgage Insurance you have to pay, if you head towards a 100% loan then the mortgage insurance is quite high, hence 5% minimum deposit is a good amount to aim for if possible.

I have seen people caught out recently when a mortgage broker told them to pay out completely their credit cards with money that came from a sale of another property then apply for a 100% no deposit loan. The downside was when they went to purchase in a rural residential area they found that due to the location of their potential postcode they had to have a minimum of 5-10% deposit. If they had not paid out the credit card (they could service with the credit card) they would have had the deposit required. They had put a contract on a property and then no lender was able to help them.

If you choose to keep the personal loan, you need to make sure that you are comfortable with both the home loan and personal loan repayment, there is nothing worse than borrowing beyond your personal means. From the banks point of view both payments are taken into consideration before a loan is approved anyway. If the personal loan is affecting borrowing capacity then yes you will have to pay it off prior to getting a loan.

If you want me to discuss your personal situation further please PM me as I am happy to discuss further.

Regards Andrea

[Rosa]

Thanks Andrea, great advice!