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.

Economic growth is picking up, interest rates are low and home prices are still reasonable, so many people have decided this is the best time for them to get into the property market by buying their first home.

However, says Berry Everitt, CEO of the Chas Everitt International property group, after they select an area they would like to live in and start looking at individual properties, first-time buyers often find themselves “freezing up” at the prospect of the huge commitment they are about to make.

What if they pick a property that turns out to need expensive repairs? What if the new neighbours turn out to be ghastly? What if something better comes up just after they’ve signed a sale agreement?

“Well, the first thing they need to remember is that there is no such thing as a ‘perfect’ property – for one thing, almost everyone’s home is something of a compromise between what they dream of and what they can afford.

“But having said that, every buyer also has certain non-negotiables – needs, rather than wants – and you should take the time to think about these and make a written checklist so that you can easily establish which of the homes you view has the most boxes ticked for the best price.”

Everitt says this strategy will prevent buyers from becoming distracted by nice-to-have but unnecessary features, or from being unduly influenced by “bargain” pricing, and will help them to resist any high-pressure selling of unsuitable properties.

“And most importantly, it will give you peace of mind, knowing that you have picked a home that is right for you and is thus your plum property, whatever else may come on to the market later.”

“Owning a home is like any other major commitment – you need to be mentally and financially ready for it,” says Adrian Goslett, CEO of RE/MAX Southern Africa.

Goslett explains that the high costs involved in buying your own home mean that you will need to be prepared to stay put for around three to five years.

“Except in a roaring real estate market, it usually doesn’t make sense to buy a home you will own for less than three to five years. The high transaction costs involved in buying and selling property means that you could end up losing money on the deal if you sell before your property has had time to rise in value and you have had time to pay off a bit of the loan and absorb some of the transaction costs.”

Of course, a key consideration that needs to be carefully evaluated before buying a home is whether you can afford to make the necessary financial commitment. “To make an accurate assessment, it is highly advisable to visit or call one of the many bond originators like Mortgage Plus or banks. They will help you assess whether you can afford to buy a home or not. It is critical that you be completely transparent about your monthly expenses, so that they can assist you in making a truly informed decision.

“Once your mortgage originator or bank has assessed your financial position, they will be able to tell you what you need to earn to qualify for the bond amount you require, or they will let you know how much you qualify for based on your income and expenses.”

Goslett notes that first-time buyers must keep in mind that in the majority of cases, they will also need to save a deposit of up to 20% of the purchase price of the house, plus enough money to cover the transfer and electricity connection costs as banks seldom, if ever, approve 100% home loans these days. In addition, Goslett advises that homeowners should ensure that should the interest rate increase, as is predicted for early in 2011, they are still able to afford the increased monthly bond repayments.

He explains that your credit rating is an essential component for bond approvals. “Many young people don’t realise the importance of keeping your financial records and credit ratings in order. If you have lots of late payments, have declared bankruptcy or left old debts unpaid, it will be much harder for you to be approved for a home loan. And even if you do get a home loan, your bad credit rating will mean you will more than likely have to pay a much higher interest rate.” – Eugene Brink

To apply for your home loan please go to www.mortgagepluscc.co.za or call us on 011.327.4489