As far as life stages go, a mortgage and marriage often happen around the same time. So if you are getting married and looking to buy a home, how do you juggle the finance?
A mortgage comes down to two main hurdles: deposit and income. From the bank’s point of view, being defacto or married doesn’t usually alter your income, but it can significantly affect your deposit.
The ideal deposit for a mortgage at the moment is 20 percent but we are still seeing mortgages available with as little as a 10 percent deposit. So if you had a 20 percent deposit but needed to pay for a wedding, you could use some of those savings and still get a mortgage.
One thing to know is the additional cost of borrowing more than 80 percent on a house, though.
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Let’s say you are buying a house for $500,000 and you have $100,000 of savings (a 20 percent deposit), but your wedding is going to cost you $30,000, leaving you only $70,000, or a 14 percent deposit.
A mortgage with a 20 percent deposit will almost always get those great 2.65 percent rates we’re seeing but less deposit can mean the rate jumps by around 0.75 to one percent for the entire mortgage. For this example, that’s an additional $3000 to $4000 of interest every year until you can prove your mortgage is below 80 percent of the value of the property.
In most cases, dropping below 20 percent deposit will significantly increase the cost of the mortgage. You have a few options and your choice will be down to your personal preference.
1. Buy a cheaper home leaving you enough money for a 20 percent deposit and to pay for a wedding.
Financially speaking this is the more sensible outcome but won’t appeal to some.
2. Buy a home and delay the wedding.
To manage this, you will need to be able to save up for a wedding over and above your mortgage payments.
3. Talk to the Bank of Mum and Dad.
Be very clear about what the money is for though. If it’s to pay for the wedding, that’s great. If it’s to help with the deposit, discuss whether they would like the money back when the house is sold etc.
4. Borrow more and keep some available for the wedding.
As in the example we looked at above, this is the most expensive option but allows you to buy and have a wedding closer together. I would suggest declaring to the bank that you are intending to get married and want to keep some of your deposit. The bank will ask why you aren’t using all of your money anyway.
If your entire deposit is made up of KiwiSaver, you can’t borrow more than you need and use that money to pay for a wedding. If, in the example above, you were buying a $500,000 house and you had $100,000 in your KiwiSaver, the bank is not allowed to loan you more than the $400,000 you need (because that would amount to using your KiwiSaver for something other than your first home). After six months, you may be able to go to the bank for a top-up but getting a top-up over 80 percent LVR is difficult so you would need your house to have increased in value.
You can also, obviously, get married first and continue saving for a house but if house prices continue going up this may, financially speaking, be the most expensive option. If a house is worth $500,000 today and $550,000 in two years, then it has cost you $50,000 extra (plus interest over the mortgage) to have your wedding early.
If you are looking to buy a home and get married, the choice you make will be largely personal and probably mostly emotional and that’s completely fine. But it’s worth knowing the numbers to see the effects of the decision you’re making.
- Rupert Gough is the founder and CEO of Mortgage Lab and author of The Successful First Home Buyer.
