How Do No Deposit Home Loans Work

Zero deposit mortgages, or as they are more commonly referred to; no deposit home loans, are a unique type of borrowing option available to certain property buyers and can also be available to people who have a bad credit history looking for a home loan. There are several ways to enjoy the option to pay a zero percent deposit on a loan and some may be more suitable than others (depending on the buyer’s financial situation). You can find the best home loan rates in Australia by researching on online mortgage broker apps.

What is a zero deposit mortgage?

Generally speaking this type of loan is pretty self-explanatory, offering the option to borrowers whereby they can secure a mortgage without the need to pay anything toward a deposit. In Australia, where many leading banks are willing to accept as little as 5% to act as a deposit, it might come as a surprise to hear that there are plenty of instances whereby borrowers would still prefer to pay nothing toward this cost.

This is down to the fact that even 5% of the cost of a property can amount to tens of thousands of dollars; what with the average cost of buying a house in Sydney and Melbourne.

But there are also times when the money saved on a deposit can help a borrower to spend cash on renovating their new home; making this type of home loan especially popular with investors and developers. With that being said, one way to fast track an application for this type of mortgage is by using a currently owned home’s equity value.

How does this work?

When a property has been purchased, it will typically have possessed a market value relevant to the time at which it was bought. This value would have undoubtedly dictated how much was borrowed from a bank, in the form of a mortgage. But as property prices have been on the increase over the course of the past few decades; the amount owed on a mortgage can sometimes be much less than the current value of the home in today’s market.

And this difference in value is what is known as equity. In many cases it’s this equity that can be used as an asset when applying for a secondary home loan – with the value being offset against any deposit that might be owed. The home owner would therefore lose nothing and would be able to use the equity value of their first property to subsidise the deposit of the second.

Furthermore, instead of repaying two loans many banks in Australia are willing to use the equity to cross collateralise the new loan, rolling both into one lump sum and minimising the expenses of the borrower in the process. Find out how you can use no deposit home loans to finance your property investment.

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