Posted June 10th, 2024

In today’s housing market, securing your dream 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 a 5% deposit. However, how does this option stack up against co-ownership with YouOwn?

The answer might surprise you: YouOwn can be a much more cost-effective solution. Here’s why.

Higher Interest Rates with 95% Loans
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 6.85%. When you add the low equity premium of 1%, the interest rate balloons to 7.85%.

YouOwn’s Competitive Edge
In contrast, with YouOwn, you only borrow 80% of the home’s value from the bank, qualifying you for the best available interest rates. Currently, SBS offers a 1-year rate of 6.14% for First Home Buyers, a significant 1.7% difference compared to the 95% loan rate.

Cost Breakdown
To put this into perspective, let’s consider a house priced at $850,000.
95% Loan: The weekly payments amount to $1,347.91
SBS with YouOwn: The weekly payments drop to $1,123.97
This results in a weekly saving of $223.94. Over five years, this adds up to an impressive $58,224 in savings!

Co-Ownership and Capital Growth
With co-ownership YouOwn owns 15% of your home, and you will pay YouOwn 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 = $985,000
*based on yearly equity growth of 3%
YouOwn’s Share of Capital Growth: $20,300

The Financial Advantage
When you calculate the net benefit:

Interest Savings Over Five Years: $58,224
YouOwn’s Share of Capital Growth: $20,300
Net Benefit to You: : $58,224 – $20,300 = $37,924

So, by choosing co-ownership with YouOwn over a 95% loan, you could be $37,924 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.