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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
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
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