Home Loans

With property prices rapidly increasing, it’s often impossible for individuals and families to purchase property without applying for financial assistance. Whether you are interested in buying a piece of land to build on, a small apartment or a large family house, having access to financial support in the form of a home loan is what will give you the means to live in the home you have always dreamed of.

A home loan (commonly referred to as a “bond” in South Africa) is a loan given to you by a home loan provider so that you can afford to buy a house or land to build on. When you secure a bond and register it, then your property’s title deed belongs to the home loan provider until such time that you have paid the loan back in full. Most home loan providers will request that you pay back the home loan, plus interest, over an agreed-upon period of time (usually between 20 to 30 years).

Purchasing a home may be one of the biggest financial decisions you ever make. But as daunting as your decision may seem, the loan process is quite simple and in South Africa, home loans are divided into 5 types.

• First Time Buyers Home Loan

  Many home loan providers in South Africa will agree to lend some first-time home buyers more than 100% of a property's purchase price. This type of loan is useful to those who would like to invest in property but do not have access to funds to lay down a bulky deposit. Apart from covering the price of the property itself, this loan will also cover registration and transfer costs.

• Fixed Rate Home Loan

  Fixed rate home loans secure an interest rate so that the borrower can escape the burden of inflation. As a rule of thumb, a fixed rate will always be higher than the base home rate but increasing rates will not apply to you. The only negative aspect of a fixed rate agreement is that if interest rates do decrease, then you will still have to pay the higher fixed rate.

• Variable Home Loan

  Variable home loans work by attaching the interest rate to the base home loan rate. What’s important to note is that the base home loan rate can fluctuate, depending on the amount of the loan. So, if the home loan base rate decreases by 1%, the interest rate will follow. If it increases by 1%, however, then the disadvantage is that the interest rate will increase too.

• Capped Rate Home Loan

  If you would like to avoid a variable interest rate without locking yourself to a fixed rate, then a capped rate is the solution. For example, if the cap rate is 5% per annum and the capped period is two years, this means that your interest rate will not increase more than 5% during the first two years of the loan term.

• Step Down Home Loans

  This is a great option for those who are close to retirement. With a step down home loan, your rate will gradually decrease every year. By lowering your rates, you can save money but the period of time in which you pay off your loan is shortened.

If you would like to invest in property but do not have millions of Rands at your disposal to cover the purchase price, the transfer fees, and all of the legal costs, then taking out a bond can help you to buy the home of your dreams.

Apart from providing you with financial aid, a home loan can also offer the following benefits:

• While a home loan may be your largest debt, it makes buying a home more affordable. It allows you to spread the repayments on your home loan over many years and this makes the amount you pay back more manageable.
• A mortgage is an affordable way of borrowing money because the interest rates are usually lower than other loan options. This is due to the fact that the loan is secured against your property and if you cannot make your loan repayments, then the lender will sell your property to reclaim some or all of the funds that are owed to them.
• When you purchase a home, then you can gain from capital appreciation - you will benefit from the rise in prices of the property over time and can stand to make a substantial profit when you sell.
• It saves you from paying rent. Instead of paying rent so that you can cover someone else’s mortgage, a home loan allows you to pay towards property that you will soon own.

To qualify for a home loan in South Africa, you need to be 18 years or older and your history needs to prove that you have been permanently employed for at least six consecutive months (or self-employed for at least 2 years). You also need to earn a regular monthly income and you will need to prove your loan affordability i.e. how much do you earn compared to what your monthly loan repayments could be? Most lenders also require you to have a good track record when it comes to managing credit (you need to be able to show that you pay your debts in full and on time).

To begin the application process, you will also need to be able to issue the home loan provider with the following documentation:

• Your most recent payslip that holds proof of your income. Some institutions may ask for the last 3 payslips that you were issued. If you are married in community of property, then your spouse will also need to provide their payslip information.
• Make sure you have the last three months’ bank statements for your personal account as well as for your partner’s account, if applicable.
• You will need to provide certified copies of your South African identity document as well as your partner’s if you are married in COP.
• You will need to supply the lender with a statement showing your monthly income and expenses.
• You will also need to hand over a copy of the purchase agreement.

Whether you are shopping for a new home as a singleton, a newly married couple, a family or as a retired couple, you will have access to applying for a home loan with approval pending on the above-mentioned factors.

The cost of a home loan depends on how much you would like to borrow. When calculating how much you will need to loan, you will need to consider the purchase price of the property you have in mind and you will also need to add transfer duties, attorney fees, and moving costs so that you can reach an accurate figure.

What may be important for you to note is that your monthly repayment cannot be more than 30% of your gross monthly income or exceed your net surplus income.

If you can put down a sizeable deposit, then your monthly loan repayments will also be considerably less. Also, if you agree to pay your loan off over 20 years, then you will pay more per month but your overall payment will be less than if you opt to pay small amounts over a 30-year period.

And then, of course, the type of loan you choose (fixed rate, capped, variable or step down) will also affect how much interest you will need to pay. When applying for a mortgage, you can shop around to try and secure the lowest interest rate possible.

In South Africa, home loans are made available through banks, insurance companies, and private home loan institutions. This means that there is plenty of competition and shopping around for the best offer is key. Each mortgage provider will offer a different interest rate and qualifying factors will also vary between institutions.

Most home loan providers offer online calculators that will give you an estimate of how much you can borrow and what your monthly repayments will be over your preferred term. You can also use the Money Expert site to compare quotes and benefits. This will help you to source that home loan type that will best fit your pocket.