Posted June 10th, 2024

Buying your first home often involves navigating a maze of financing options. Among the choices available, some NZ banks now offer 95% loans, which allow you to purchase a home with just 5% deposit.

However, how does this option stack up against co-ownership with YouOwn?

The answer might surprise you: YouOwn co-ownership can be a much more cost-effective solution than a 95% bank loan.

Here’s why.

You Will Pay Higher Interest Rates with a 95% Loan
Banks that offer 95% loans typically charge higher interest rates. For instance, a major bank’s current 1-year fixed interest rate for a 95% loan stands at 5.99%. When you add the low equity premium of 1.2%, the interest rate balloons to 7.19%.

YouOwn’s Competitive Edge Will Save You Money
In contrast, by partnering with YouOwn, you only borrow 80% of the home’s value from the bank, qualifying you for the best available interest rates. Currently, YouOwn’s partner bank SBS offers a 1-year rate of 5.35% for First Home Buyers, a significant 1.84% difference compared to the 95% loan rate.

Cost Breakdown
To put this into perspective, let’s consider a house priced at $850,000.

95% Bank Loan: The weekly payments amount to $1,263.63
SBS with YouOwn: The weekly payments drop to $1,045.25

This results in a weekly saving of $218.39

Over five years, this adds up to an impressive $56,781 in savings!

Co-Ownership and Capital Growth
With co-ownership YouOwn owns 15% of your home with you, and you will pay a monthly equity payment and a share of the capital growth when you eventually buy them out.

Let’s break this down with an example:

Initial Purchase: House cost = $850,000
Five Years Later: House value = $985,383
*based on yearly equity growth of 3%
YouOwn’s Share of Capital Growth: $20,307

The Financial Advantage
When you calculate the net benefit:
Interest Savings Over Five Years: $56,781
YouOwn’s Share of Capital Growth: $20,300
Net Benefit to You: $56,781 less $20,300 = $36,481

So, by choosing co-ownership with YouOwn over a 95% bank loan, you could be $36,418 better off over five years.

Conclusion
In conclusion, while a 95% loan might seem like an attractive option for getting into the property market with a smaller deposit, co-ownership with YouOwn offers significant financial benefits. By securing a lower interest rate and sharing the capital growth, you can make substantial savings and achieve your homeownership dreams more affordably.

 

*current as at 25 October 2024