Broker is advising he can help us get finance soon but we would have to break the deposit

Question

My husband and I have just invested $20,000-00 for 6 months with our bank - the money we will use towards a deposit in purchasing a house. But a friend asked her insurance broker from Sovereign to call us to help organize a pre approved loan - this broker is advising he can help us get finance soon but we would have to break the deposit.

Is this a wise thing to do - the broker advised the prices of housing is ok right now and we shouldn’t wait for our investment term to expire. We are also saving to add to this in the meantime?

Regards

Elizabeth

Answer

I do not like the sound of the advice. Sure, the pre-approval of the loan will need to be documented and your statement of position taken into account when making that application but the term deposit is an asset to consider yours until the house of your dreams is located.

From this sum it is obvious you will pay any deposit, when you find the right property and at that time you will consider the term of investment left to run. You have invested over a reasonably short term but the bank does have a contract with you for six months and may or may not elect to break that deposit for you.

As an aside, I note that folk are becoming somewhat cavalier in their attitude to breaking deposits these days and I think they need a reminder from time to time that indeed they are contracting to lend their money at a rate of return, for a fixed period, and should not expect an institution to just break a deposit at their whim or call.

I would be of a mind to talk to your own bank as to their current terms of lending as well as maybe one other provider to ensure you understand the mortgage market of the moment and then choose.

As to whether the housing market is currently to a buyers or sellers advantage only well researched, local knowledge will dictate. Overall the residential market seems to be at a higher than lower (seller’s advantage) point in the current cycle but it does look like a softening of prices is occurring overall. Whatever, I would not believe the person you describe would be qualified to make any such assertions, be warned of vested interests - my advice, keep saving until you have 20% deposit and then watch out for expensive, not required, insurance add-ons.

Original Article published August 2005