What is a mortgage? - www.mortgagepluscc.co.za

• A mortgage is a loan that is secured on immovable property, normally your home, hence the term “home loan”.
• The mortgage is lent to you in a lump sum to pay for the property and is legally bound to the property by the attorneys who register your mortgage bond. You then have to pay back this mortgage over a given length of time.
• This time period is usually 20 years, but it can vary between 5 and 30 years depending on circumstances.
• If you don’t make payments as agreed, the lender has the right to sell your property in order to recover their money. This is rare but it is important to understand from the outset that if you do not keep up with your mortgage payments you are at risk of losing your home. 

How much can I borrow for a mortgage? – Affordability Calculator

• This is often one of the first questions to be asked.
• Unfortunately it is not an exact science and all banks have their own methods to calculate affordability.
• Since the introduction of the National Credit Act this has become more complicated.
• The most accurate method of establishing how much you are eligible to borrow is to contact your Mortgage Plus Bond consultant.

• Generally the larger the deposit (as a percentage of the value of your house), the better the interest rate you can negotiate with the bank.
• This is because the lenders know that if you default on your loan and they repossess the property, there is more chance of them getting their money back on the sale of the property. Hence there is less risk to the lender.
• The larger the deposit you put down, the lower the rate of interest you are likely to get.
• A larger deposit also reduces the risk of you going into negative equity, where the value of your house falls below that of your mortgage. This makes it difficult to sell your house because the proceeds won’t cover the debt you owe. 

The main additional costs are:
• Transfer fees
• Conveyance fees
• Bond registration fees
• Valuation fees
• Initiation fees

• Mortgage brokers are paid a commission by the lender for every mortgage organised on behalf of their clients. A mortgage broker should not charge their client a fee.
• As a client, always ask your mortgage broker about their commission relationships with lenders. Good brokers will always disclose this information.
• You will require significant additional funds to cover the deposit and fees. Remember to include these costs when calculating how much you can afford to spend on a house.

How much will my mortgage interest rate be?

Your mortgage interest rate will depend on a number of factors such as:
• The loan to value ratio (the size of your mortgage compared to the price of the house you are buying or own).
• Your repayment to income ratio (the cost of your monthly mortgage repayment to your gross monthly income).
• The size of your bond.
• Your credit profile.
• Contact your Smartbridge mortgage consultant for advice on your likely interest rate.
• The interest rate charged on your mortgage is crucial. It will determine how much you can afford to borrow and therefore how much you can afford to spend on a house

Your maximum monthly mortgage payment is based on your monthly disposable income. To calculate your monthly disposable income: • Subtract all your deductions such as tax and UIF from your gross income to get your net income. • Calculate your total monthly expenses, such as groceries, car insurance etc. • Subtract your monthly expenses and existing debt such as credit card, vehicle finance, or loan repayments from your net income. • The balance (if there is any) is your potential maximum monthly mortgage payment.

I have additional sources of income, how will this affect my mortgage application?

• Lenders will take into account additional income you may have such as rental income, investments and dividends etc. • Lenders vary in how they view additional income streams. • Contact a Mortgage Plus consultant to assess and discuss your options.

Can family members make a contribution to my mortgage application?

• Yes.

• You can take into account contributions from family members if they are living on your property. • If a partner or child is making a contribution to the family finances, then the banks will recognise it. • It is your responsibility, as the borrower, to prove these family contributions.

Is my annual bonus taken into account in my mortgage application?

• Yes.

• Annual bonuses are taken into account but you will have to prove them with entries on your bank statements and letters from your employer.

Johannesburg – It is more difficult to buy a house than ever before notwithstanding lower interest rates, market statistics show.

According to Absa’s latest house price index, prices were 15.2% higher last month than a year ago.

The average house price is R1m.

There are several factors affecting the affordability of housing.

These include the broader economic environment, household indebtedness, banks’ lending criteria and the National Credit Act.

There has also been a recent decline in calculations of affordability, how house prices relate to household disposable income, and bond payments to disposable income.

In terms of the Credit Act, a household’s gross monthly income is no longer the absolute determinant when it comes to buying a house; instead, is the net disposable income, says Jacques du Toit, senior property analyst at Absa’s home loan division.

A prospective homebuyer is granted a mortgage loan on the basis of his net disposable income which is the income remaining after all household expenses have been deducted.

These expenses include statutory deductibles, such as income tax, pension contributions and unemployment insurance, says Du Toit.

In addition, all household expenses such as school fees, food and petrol, insurance premiums and investment contributions are factored in as well as payments on credit agreements such as car payments, bonds on other properties and retailers’ accounts.

The applicant’s risk profile is also examined, as well as the relationship of the home loan to the value of the property, the period of the loan and the interest rate attached to the loan.

Affordability shrinking

For a household to be able to buy an average R1m house at the current 10% interest rate it will have to afford a monthly bond payment of R9 650 over 20 years.

South Africa’s nominal average annual disposable income per capita was R29 553 in 2009, slightly up on the R28 635 for 2008.

Du Toit says the affordability of accommodation, which had improved in the past two years as a result of house prices and interest rate movements, has recently begun to deteriorate.

The affordability of housing is calculated by examining the relationship between house prices and household disposable income, as well as that of bond payments to disposable income.

Nominal house prices increased 4.4% year-on-year in the fourth quarter of 2009, while household disposable income rose 2.7%.

House prices have therefore risen more quickly than income, which means affordability comes under pressure, he says.

The ratio of bond payments to disposable income also increased in the fourth quarter.

Du Toit says this is the net result of rising house prices, the increase in household disposable income and interest rates remaining steady over the quarter.

Consumers had no support from an interest-rate cut during the quarter.

Other factors playing a role in affordability are rising property taxes and levies, as well as increasing electricity and water tariffs.

These significantly increase the cost of keeping a house.

He said the above factors make it clear that consumers are being affected on all sides in terms of affordability, which makes buying a house so much more difficult.

 - Sake24

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za

1. Your own bank will seldom give you the best home loan deal.
This trend has become more and more evident over the past year, as banks try to woo new clients from their competitors. Moreover, we’re seeing a sharp rise in instances where bonds are being declined by a client’s traditional bank and approved by another bank with which the client has no connection.

2. Your bargaining power ends the day your bond is registered.
If you’ve ever tried to get your bank to lower your bond rate, you’ll know what I mean. Make sure your bond originator shops around among the various lenders to secure the best possible rate concession. It’s too late to seek a better deal once your bond is registered and switching your bond from one lender to another is no longer viable.

3. You must give 3 months’ notice to cancel your bond.
When you sell your property, you should give the bank 90 days’ notice of your intention to cancel your bond. If you don’t, you’ll be charged a punitive cancellation penalty equal to 3 months’ interest. On a bond of R1million, this is like throwing R25 000 down the drain. The banks are inflexible on this cancellation penalty, and will no longer waive it, even if you place your next bond with the same bank.

4. Voluntarily increasing your monthly payment by a small amount will knock years off the term of your bond.
The miracle of compound interest! Play around with the Bond Calculator on my website and you’ll see that by repaying an extra R312 per month on a R1m bond, you’ll knock 5 years off the term of a 20 year bond and save yourself R433 160!

5. Make sure you’re getting the best insurance deal
Homeowners Comprehensive Insurance is compulsory if you have a bond. In the past, this cover was provided automatically by the bank (the mortgagee) and you were not allowed your own choice of insurer. Now you, the mortgagor, can shop around for the insurance cover that best suits your needs, and your pocket. Be aware, though, that should you choose an outside insurer, the bank may levy a monthly “admininstration fee” on your bond and this could negate the effect of a cheaper premium.

CONTACT US

Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za

www.mortgagepluscc.co.za