Saving For A House Deposit When You Still Have Debts


This article describes how you can still save for a house deposit when you have other debts.
Are you trying to save for a house deposit?

Is it vital to start your home loan journey with a clean slate? Many first home buyers spectacle whether they should be focusing on paying down debt or building their house deposit?

Understanding your situation goes a long way to answering this question.

  • Are you managing your current debt levels?

  • Could you comfortably afford the repayments on the debts as well as a new mortgage?

If the answer is no, it might be best to focus on debt reduction before working on your deposit.

The case for paying off debt:

The process of paying off high-interest debt before you get a home loan may also positively impact your money management skills.


Undoubtedly, the transition to homeownership would be much easier without any other debts hanging around. And now might be the best time to clear those debts once and for all. However, you could find it harder to get rid of debt once you have a mortgage repayment and other costs associated with property ownership.


When all you want is to buy your own home, it can be challenging to focus on paying down debt. But once you start to crunch the numbers, you soon realise that paying interest on your debts while receiving next to nothing for your savings does not make sense at all. And with many lenders offering home loan finance with as little as a 5% deposit, you will not get left behind.


The process of paying off high-interest debt before you get a home loan may also positively impact your money management skills, which will be helpful once you have a mortgage. And once you have made a dent in those pesky debts, you will supercharge your savings with the money that previously went to monthly repayments (and all that interest).

Here are three simple reasons why it is a good idea to pay down debt:

  • Improve your borrowing power

  • Save on interest

  • Stronger home loan application

Not all debts are created equal.

There are all kinds of debt – credit cards, car loans, HECS, interest-free plans and much more. But not all debts are created equal. Unsecured (and usually high interest) debt can limit your ability to save and affect your borrowing power. So, it is a good idea to clear these types of loans before focusing on your deposit.

Example: A credit card carries a high-interest rate and could take years to pay off if you pay the minimum each month. You will incur plenty of interest along the way too. On the other hand, HECS debts are not charged interest (indexed in line with CPI); they only require payments when your income reaches a certain level and have no expiry.

In this example, credit cards will have a more significant impact than a HECS debt on you to save or meet mortgage repayments.

You are meeting your commitments.

In addition to debt reduction, financial discipline helps prove your creditworthiness to a potential lender. Through your credit report, they can view your applications for credit, defaults and repayment history. Having a clean credit report and making repayments on time will give your lender confidence that you will meet your home loan commitments.

High credit limits may affect your borrowing power, so consider reducing your limit or closing your account before applying for a home loan. A lender will always include the total commitment in home loan servicing calculations.


Be the boss of your budget.

If buying a house is a top priority – we can help you plan to reduce debt and save for a deposit. Speak to ASA Mortgage Brokers today.


This article is prepared based on general information. It does not consider individual financial objectives or needs and is not financial product advice, and the content quoted from Yellow Brick Road Blog.

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