What it means for your bond repayments.

With mortgage interest rates at 5,5 percentage points below the peak of 15,5% in late 2008, mortgage repayments are currently 28,7% lower than 18 months ago, said Luthando Vutula, Managing Executive of Absa Home Loans.

“As a result, the monthly repayment on, for example, a R500 000 mortgage loan over a 20-year term is, at R4 825, a total of R1 944 lower compared with early December 2008 when the mortgage rate was 15,5%”.

Vutula commented after the announcement that the repo rate, was left unchanged at a level of 6,5% by the SA Reserve Bank’s Monetary Policy Committee (MPC).

He added: ” Absa does not expect interest rates to be cut further in the current cycle, although some further job losses were evident in the first quarter of the year, which are bad news for the financial recovery of the household sector and eventually also for the upswing in the residential property market.

“No further cuts in interest rates will imply that the recovery in the economy, an expected gradual improvement in consumers’ financial position, and possible further selective relaxations of banks’ lending criteria will be the main factors driving the property market in the rest of the year and into 2011″, he said.

Against the background of these developments and expectations, Vutula urges consumers and prospective homebuyers to keep spending under control, while trying to reduce debt, especially with the prospect of steadily rising interest rates during the course of next year.

In view of this, Vutula advises homebuyers to focus on properties that are affordable, based on their financial position and the possibility of interest rates being on a rising trend by this time next year.

“It is always prudent to factor in a higher level of interest rates when buying property and applying for mortgage finance, especially when rates are believed to be at a lower turning point at the time of buying”, he concluded.

With house prices firmly back on an upward trend and banks beginning to relax their lending criteria for home loans, consumers are increasingly looking to get back onto the housing ladder.

As the property market becomes more competitive, however, it is vital for consumers to make sure they are well prepared and can act quickly when an offer is accepted.

Craig Deats – has the following advice for potential homebuyers when applying for a home loan to ensure they have the ultimate opportunity for success on their bond applications.

1. Make sure you are aware of all the costs involved in buying a home. In addition to arranging a home loan and paying a deposit there are a number of other costs involved including legal costs, transfer duty, bond registration fee and bank charges. These will need to be paid in order to complete the process.

2. It is advisable to have a clean credit record before applying for a home loan. As a result of the National Credit Act and current market conditions, banks have tightened their lending criteria and a negative credit record may impact the result of your home loan application.

3. Provide your bank or bond originator upfront with all required information and documentation requested. Each bank has their own set of criteria so ensure that you have met the requirements of each lender.

4. Make use of a reputable bond originator, who can assist you by facilitating bond negotiations with all major lenders in one simple process from prequalification to registration, with less hassle and minimal paperwork. They also provide regular feedback of progress on your application.- www.mortgagepluscc.co.za 

5. Shop around with multiple lenders. According to the latest statistics, 19.8% of applications in January 2010 that were declined by one lender were approved by another, indicating that it is important to approach multiple lenders to ensure a positive outcome on your home loan. Shopping around also ensures that you get the best rate on offer.

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