Question:

What do I need to know about no-deposit home loans?

Answer:

Most people probably shouldn't take on a mortgage if they can't save at least a few thousand dollars for a deposit on a home.

Don't rely on a keen mortgage lender to assess your ability to service a loan. Make sure that you won't find yourself unable to meet mortgage payments and having to sell your house at a time that doesn't suit you.

If you do face a forced sale, you are not in a strong position to bargain. If it happens to be when house prices have fallen, in particular, you may well end up owing the bank more than you get for your house - possibly leading to bankruptcy. It's happened before and it will happen again.

Another negative is that 100 per cent mortgages usually include lender's mortgage insurance, which can raise the fees considerably. And the insurance protects the lender, not you.

A safer way is to find out, before you buy, roughly how much mortgage payments would be on the sort of house you might buy.

If it's, say, $1300 a month, and your rent is $600 a month, save the $700 difference for a year or two, and then use that money as your deposit. Then you will know you can probably cope with the mortgage.

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.  

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