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Before you apply for finance to buy residential property, it is important to understand the basics of a home loan. In a nutshell:
• A home loan is a credit transaction granted by the bank to you to buy a residential property.
• Your home loan is repayable in monthly instalments over a specific period (term).
• Your home loan attracts interest over the term of the loan. There are also initiation and service fees.
• The Bank will register a mortgage bond over the property (as security for the loan) until your home loan is settled in full and your account is closed.
A home loan is calculated using a financial tool called an Amortisation Schedule. This means that the principal
debt is paid over a specific period with interest accumulating each month. The monthly instalment includes a
portion of the principal debt (capital) and interest accrued and is calculated in such a way so as to pay off the
principal debt within the agreed period.
At the start of the home loan term, the interest portion of the instalment is much higher than the capital
portion so your balance does not reduce significantly in the first couple of years. However, as the loan
amortises (is paid off), the capital portion increases while the interest portion decreases keeping the
instalment constant.*
An example of a basic amortisation schedule is shown below (excluding any fees, insurance premiums, rate changes or prepayments):
Loan amount R500 000
Period 240 months
Interest rate (per annum) 9%
Payment R5 387.94
| Month | Interest | Capital Reduction | Balance | Installment |
|---|---|---|---|---|
| 1 | R 3,750.00 | R 748.63 | R 499,251.37 | R 4,498.63 |
| 2 | R 3,744.39 | R 754.24 | R 498,497.13 | R 4,498.63 |
| 3 | R 3,738.73 | R 759.90 | R 497,737.22 | R 4,498.63 |
| 4 | R 3,733.03 | R 765.60 | R 496,971.62 | R 4,498.63 |
| 5 | R 3,727.29 | R 771.34 | R 496,200.28 | R 4,498.63 |
| 6 | R 3,721.50 | R 777.13 | R 495,423.15 | R 4,498.63 |
| 7 | R 3,715.67 | R 782.96 | R 494,640.20 | R 4,498.63 |
| 8 | R 3,709.80 | R 788.83 | R 493,851.37 | R 4,498.63 |
| 9 | R 3,703.89 | R 794.74 | R 493,056.62 | R 4,498.63 |
| 10 | R 3,697.92 | R 800.71 | R 492,255.92 | R 4,498.63 |
| 230 | R 354.96 | R 4,143.67 | R 43,184.95 | R 4,498.63 |
| 231 | R 323.89 | R 4,174.74 | R 39,010.21 | R 4,498.63 |
| 232 | R 292.58 | R 4,206.05 | R 34,804.16 | R 4,498.63 |
| 233 | R 261.03 | R 4,237.60 | R 30,566.56 | R 4,498.63 |
| 234 | R 229.25 | R 4,269.38 | R 26,297.18 | R 4,498.63 |
| 235 | R 197.23 | R 4,301.40 | R 21,995.78 | R 4,498.63 |
| 236 | R 164.97 | R 4,333.66 | R 17,662.12 | R 4,498.63 |
| 237 | R 132.47 | R 4,366.16 | R 13,295.95 | R 4,498.63 |
| 238 | R 99.72 | R 4,398.91 | R 8,897.04 | R 4,498.63 |
| 239 | R 66.73 | R 4,431.90 | R 4,465.14 | R 4,498.63 |
| 240 | R 33.49 | R 4,465.14 | R 0.00 | R 4,498.63 |
Mortgage Plus – Amortization Schedule financial tool Click Here
* An instalment is calculated using the home loan base rate as a reference rate and this rate is subject to change from time to time which will impact the instalment amount.
Please contact us if you require any further information or would like to apply for finance:
Complete this short form online
011.327.4489 / 0861 1111 93
morne@mortgagepluscc.co.za
www.mortgagepluscc.co.za
How to Know What you Can Afford when Buying Real Estate
If you are considering buying a home the first thing that comes to mind is affordability. How do you know what you can afford?
Wouldn’t it be great if you could just write a cheque for the home of your dreams and to know that it is taken care of? Almost like buying a new set of golf clubs or a leather coat. Just write out a cheque. But unfortunately, very, very few (if any) people in today’s life can afford buying a home like this. In the real world, the way to go is a mortgage. Taking out a mortgage is a very big commitment and the following questions should be answered before making any decisions.
Firstly, you should ask yourself what your ability is to make a down payment. If a down payment is required, you should know how to go about getting the money and how much you will be able to give toward a down payment.
Secondly, ask yourself what your ability is to make monthly payments. Monthly payments on your mortgage are one of your most important monthly payments you will ever make. Not only can you lose your home if you don’t make these payments, but you can be blacklisted and never be approved for a home loan again.
Your financial future should be taken into consideration as well. You should know the stability of your earning power before making this kind of commitment. If you are not sure if you will have a job in the next six months because your company is retrenching left right and centre, you should probably not make such a huge financial commitment at this stage. But even if you are sure you will be able to make the payments every month, on time, you should still have a contingency plan. This is necessary for a worst-case scenario. Anything can happen and you might need the money for something else, so when taking out a home loan, make provision for the unforeseen and make sure that if something should happen that makes it impossible for you to make the monthly payment, you have some savings to cover your monthly payment.
Chances are slim that you will need this, but like insurance and medical aid, if you don’t have it, something will happen and if you do have it, you will hardly ever need it! Better safe than sorry.
Please contact us if you require any further information or would like to apply for finance:
Complete this short form online
011.327.4489 / 0861 1111 93
morne@mortgagepluscc.co.za
www.mortgagepluscc.co.za
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