Question Answers regarding new home loans in SA

Q: My husband and I have been renting since we got married 2 years ago. We are now in a relatively stable financial position and would like some advice on buying our first home.

A: The decision to buy a home has proven to be one of the best made for millions of happy homeowners. It’s a fact that property is a good investment, especially when you compare it to paying rent. It is important however to enter the property market with a good understanding of how a property purchase works, what your costs will be and a respect that this is probably one of the largest financial commitments you will ever make. Investors with reasonable deposits can find outstanding opportunities in the current property market – the power has shifted from sellers to buyers and the prices are reflecting this change.

Your Mortgage Plus consultant will give you the best advice on all aspects of your home purchase, and most importantly on financing it, particularly when the banks differ in their approach to lending. We will help you understand the different interest rates, fees and charges, and terms and conditions available. We will explain to you the features of the different loans and why they are more suited to your individual requirements.

Important pointers to consider:

Then, by effectively structuring your finances, you can significantly reduce your total home loan debt. Arranging part of your salary to be credited directly to the loan and making additional repayments on an ad hoc basis (like when you get a bonus) will have very beneficial results. By sticking to a workable, monthly budget and avoiding unnecessary debt, you can repay your loan much more quickly and save vast amounts of interest. To find out how much interest you can save and how many years you can take off your loan, contact us today.

Q: My wife and I are talking about buying a home but I am not sure how to calculate what type of home loan I can afford. Please can you advise what calculation one needs to do to work this out and what other fees, levies and duties there are over and above the purchase price.

A: Before you start looking for a home, you need to do a few calculations to establish your price range, your repayments and the once-off costs of the purchase.

To work out the loan amount you qualify for, you have to be realistic in calculating the monthly amount you will have available for the repayment for the loan, rates and taxes or other property levies.

The Mortgage Plus Affordability Calculator on our website uses the simple criteria of not committing more than 30% of your monthly income for loan repayments. This is used to try and ensure that you do not over commit yourself financially in the event of interest rate increases and other monthly expenses. The calculation is based on your Gross Monthly Income, the current interest rate and the number of years it will take to repay the loan.

In terms of fees, levies and duties, the purchase of property is levied by the government in terms of raising transfer fees and there are also legal and admin costs for the registration of the home loan. Most of these costs are due upfront, before transfer of ownership can take place.

The Registering Attorneys Fees are for the service of registering the bond over the title deeds of the property. The amount varies according to your home loan amount. The Attorneys also charge a levy to cover the costs of posting documents to other conveyancers, the bank, estate agents, the Deeds Office, to you personally, etc. The amount is normally fixed and differs per law firm.

The Deeds Office also charges a fee for the legal registration of the mortgage bond over the property. The amount is determined by the amount of the home loan and is scaled from a minimum of R200 to a maximum of R1000.

The Transfer Duty charged for individual persons by the Deeds Office is 0% for purchase price up to and including R500 000 and thereafter 5% for purchase prices up to and including R1 million. For a purchase price R1 000 001 and over the Transfer Duty is R25 000 plus 8% on the value Legal persons pay a flat fee of 8% of purchase price in terms of Transfer Duty.

By choosing Mortgage Plus for a loan, you will get professional advice to make sure you are getting the best deal possible.

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

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Access Bond Facility – This allows you to deposit and draw funds from your home loan up to a set amount.

Agreement of Sale / Offer to Purchase – Contract is signed by a buyer and seller stating the terms and conditions under which the property will be sold

Annual Premium – This is the premium payable once a year in respect of a life assurance or a home owner’s insurance policy.

Attorney – When buying property two different attorneys are involved; Transferring and Registration Attorney. The Seller gets to nominate the Transferring attorney whereas the purchaser gets to nominate the Registration / Bond Attorney

Assessment – The bank’s assessed value of the property

Assessment Fee – This fee pays for the administration work that accompanies a property assessment.

BA Linked Rate – Rate linked to 3 month BA SAFEX rate which can be monitored on an ongoing basis. This option guarantees a fixed rate for three months. The rate will change every three months in line with the cost of short term funding rates. This type of product normally has a minimum loan size and a maximum loan to value qualification criteria.

Balance Sheet – Used for the recording of the financial positions of private individuals, companies, cc’s and trusts.

Bearer / Seller – The legal owner of a piece of property.

Bona Fide – In good faith.

Bond Costs – These are the conveyance’s fees, stamp duty and VAT. They are payable by the buyer to the attorney attending to the registration of the bond on behalf of the bank. Conveyancing fees and stamp duty are calculated on a sliding scale based on the bond registered.

Bond registration fee – The fee charged for the registration of the home loan in the buyer’s name

Bond Term – This is the original term of the loan

Borrower (Mortgagor) – An individual who applies for and receives funds in the form of a loan and is obligated to repay the loan in full under the terms of the loan.

Broker / Estate Agent – An individual who brings buyers and sellers together and assists in negotiating contracts for a client.

Building Contract – A Contract between the land buyer and the builder, outlining the specifications of the building.

Building Loan – A Loan granted to a buyer who buys a vacant plot of land on which he intends to build

Buyer’s Market – Market conditions that favour buyers. With more sellers than buyers in the market, sellers may be forced to make substantial price concessions.

Capped Rate – Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan.

Ceiling – The maximum allowable interest rate of a variable rate mortgage

Collateral – Assets (such as your home) pledged as security for a home loan by either yourself or a relative

Contract of Sale – The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Conveyance – The document used to effect a transfer, such as a deed, or mortgage.

Cooling off period – This clause is included in an offer to purchase a property under R250 000. It is based on a new law allowing first time home buyers the opportunity to change their minds within five days of signing the offer.

Credit Bureau – A credit bureau is a clearinghouse for credit history information.

Credit Report / Profile – A report detailing the credit history of a prospective borrower that’s used to help determine borrower creditworthiness. There are 2 main Credit companies used by lenders in South Africa, namely ITC and Experian. These companies collate credit history on individuals and companies, which they obtain from various sources in the retail market place and legal system. Your bank account history is another important source of credit information used by lenders in assessing your credit profile.

Credit Score – A statistical method of assessing your creditworthiness. Your credit card history; amount of outstanding debt; the type of credit you use; negative information such as bankruptcies or late payments; collection accounts and judgments; too little credit history and too many credit lines with the maximum amount borrowed are all included in credit-scoring models to determine your credit score.

Deed – Legal document by which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.
Deeds Office – This is a government department whose task it is to attend to the registration of transfers of Immovable property

Deeds Office Registration Fees – These fees are charged by the Deeds Office for registering the mortgage bond and the title deed

Default – Failure to meet legal obligations in a contract, including failure to make payments on a loan.

Deposit / collateral – The deposit is the part of the purchase price of the property that you pay in cash up front and reduces the amount that you will need to lend. A lender prefers a deposit as it means that the borrower has a financial commitment, in the property and the home loan required is less than the current market value of the property. For this reason the loan to value concept is an important factor in negotiating rate concessions and obtaining loan approval with minimum supporting documentation. Collateral other than property is also taken into account when calculating your loan to value ratio.When a borrower does not have cash available for a deposit, other acceptable types of collateral security include, but are not limited to the following :Shares, fixed deposit, bank/company/government gurantees, debt free immovable property, life assurance policies.

Equity – This is the amount by which the value if a bonded property exceeds the amount owing on the loan
Finance Charge – This is the interest charged by the bank on the loan

Foreclosure (or Repossession) – Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default.

Freehold – When you own the property and the land that it’s build on, and within building regulations you are able to renovate and or extend to the outside of your property.

Grace Period – Period of time during which a loan payment may be made after its due date without incurring a late penalty. The grace period is specified as part of the terms of the loan in the Note.

Gross Income – Total income before taxes or expenses are deducted.

Home loan Application – An initial statement of personal and financial information required to apply for a loan

Installment amount – This is the basic monthly installment amount payable on the home loan, excluding insurance or assurance premium, where applicable \

Interest – Charge paid for borrowing money, calculated as a percentage of the remaining balance of the amount borrowed

Interest Rate – The annual rate of interest on the loan, expressed as a percentage of 100.

Joint Liability – Liability shared among two or more people, each of whom is liable for the full debt.

Latent Defect – This is a fault or flaw that is not immediately detectable or is hidden from view on inspection of the property

Lender – The bank, mortgage company, or mortgage broker offering the loan.

Loan + Costs – This product allows the borrower to lend more than 100% of the property value. It is geared for the first time homeowner and allows the borrower to include registration and transfer costs with the purchase price of the home

Loan-to-Value Ratio (LTV) – This is the percentage the bank is willing to lend you, expressed as a percentage of the bank’s estimated value of the property and the loan amount requiredLoan to Value (LTV) = [home loan amount required divided by assessed property value] x 100 Home loans of up to and exceeding a LTV of 100% may in certain circumstances be granted, subject to an acceptable Affordability Factor and valuation of the property in question.

Monthly instalments – Over the term of your loan, you will repay your home loan by way of regular monthly payments of principal and interest. Monthly installments are normally paid to the lender via debit order from your account. During the first few years, most of your payments will be applied towards interest. During the final years of your loan, your payment amounts will be applied primarily to the remaining principal debt. The amount of your monthlyinstalment can be affected by changes in interest rate and changes to the principal amount of your loan. As a rule of thumb your monthly installment should not exceed 30% of your gross monthly income.

Mortgage Broker – An individual or company that arranges financing for borrowers.

Mortgage or Bond – An agreement between you and the bank, stating that the bank will lend you a certain amount of money in the form of a home loan, and that you will pay the bank back over a certain period, on a monthly basis, and at a certain interest rate.

Notice of Default – Written notice to a borrower that a default has occurred and that legal action may be taken.

Occupation – This is the date the buyer moves into the property

Occupational Rental – This is paid by the buyer to the seller at an agreed amount, if the buyer decides to move into the property before transfer of ownership takes place.

Offer to Purchase – This is an offer in writing from the buyer to the seller, which is usually prepared by the estate agent. Once signed, by all parties it becomes a legal and binding contract between the buyer and the seller

Power of Attorney – Legal document authorizing one person to act on behalf of another.

Pre-approval – A lender’s firm commitment on a loan and it enables you to enter into negotiations with confidence. A pre-approval includes a preliminary screening of a borrower’s credit history. Information submitted during pre-approval is subject to verification at application.

Pre-qualification – Pre-qualifying gives you a general idea of your borrowing power. It is the process of determining how much money you will be eligible to borrow

Purchase Agreement / Deed of Sale – Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Reducing / Step Down Rate – Regardless of whether the variable home loan interest rate falls or rises, the reducing interest rate option will apply for the agreed period (usually less than 5 years). This facility guarantees you that your interest rate will decrease by a set percentage every three to six months for the agreed period. Should this option be terminated before the expiry date an additional finance charge can be levied by the lender.

Registration – This is the process whereby ownership of the property is transferred form the seller to the buyer via a deed of transfer. Your home loan will be secured at the Deeds office as a mortgage bond.

Repayment Terms – The length of your home loan repayment period with the financial institution. The longer your repayment period the lower your instalments. The maximum repayment period is 20 years and is dependant on the home loan amount.

Second Mortgage – An additional mortgage placed on a property that has rights that are inferior to the first mortgage.

Sectional Title – An entire complex block of flats etc. divided into individual units, sold separately and no one of the owners has the right to extend to the property.

Stamp Duty – This is a tax obligatory by the government

Short Fall – Short fall is more likely when it comes to a building loan. This is when value in the property is higher than the bond granted from the bank. In other words the client has paid a big amount in cash and did not use the banks money.

For more info on Home Loans, Bonds and Mortgages please call us on (011)327-4489

www.mortgagepluscc.co.za