The word “home loan” or “mortgage” have exactly the same meaning. Since most of us do not have enough money to pay cash for a home, we need to apply for a home loan or mortgage from a bank to assist us with the purchase

If you found the home of your dreams and the bank grants you a home loan then your bank will pay the owner of that property. Thereafter you will have to start to making monthly repayments to pay off the debt you now have

Although the definition of a home loan is straightforward, the actual process is very detailed in nature. Here are some basics about home loans that you should know.

Home loan amortization

Amortization is a term used to describe the payment of a homeloan through a schedule of systematic payments. You will have to keep up with your monthly payments to the bank until your home loan is paid in full.

Your monthly payments are made up of principle (the original loan amount) and interest payments. A loan amortization schedule shows the allocation of each loan payment to interest and principle

Loan Term

Your loan term is the amount of time it takes you to pay off your loan. The loan term can vary from 5-30 years, although most people in South Africa, prefer a 20 year loan term.

The longer you take to pay off your loan the lower your monthly repayments will be, but at the same time the interest that you will be paying will be much higher.

Types of Mortgages

The most common ones in South Africa are the fixed, variable rate mortgage as well as, more recently, the interest only mortgage.

A fixed rate mortgage means that your repayments remain the same over a certain period. The only increase that you can expect is the result of increases in insurance rates and property taxes.

With a variable rate mortgage your monthly repayments will fluctuate. If interest rates are going down your monthly repayments will decrease, but should rates go up your payment will increase accordingly.

With an interest only mortgage you only pay off the interest on your loan and delay the repayment of the principle debt. However, you will have to settle the debt eventually by either restructuring your payments or by selling your home.

Financial Calculators
If you are comparing either a fixed, variable or interest only mortgage home loan, then you could use one of our financial calculators to help you decide.

You should now have a much better understanding of what a home loan or alternatively a mortgage is.

For a more detailed discussion on various subjects you can call us on (011)327-4489 or go to www.mortgagepluscc.co.za