Mortgage Basics – South Africa

The type of loan you select will affect not only the amount of interest you pay to the lender and the term or life of the loan, but can also have other options and add-ons that can help you realise future financial goals.

Interest Rates and Life of the Loan

Typically, the maximum life or term of a mortgage is 30 years, but almost any other time period can be negotiated, with shorter loans sometimes attracting cheaper interest rates. A lower interest rate and shorter term on the loan means you will pay less interest to the lender over the term of the loan; Saving you money.

However, monthly payments on a shorter loan will generally be higher than those on the same loan set for a longer time period. The higher payments are obviously required to repay the debt sooner.

Conversely, a long term loan with smaller payments can be easier to budget for and mean less lifestyle sacrifices will need to be made. If you can afford to pay off your loan sooner, then a shorter term loan is often more advantageous.

Fixed Rate vs Variable Rate

The two most common loans offered are fixed rate mortgages and variable rate mortgages. A fixed rate mortgage comes with an interest rate that is fixed for a set amount of time whereas an variable rate mortgage will fluctuate as the market changes.

The benefit of a fixed rate mortgage is to protect you from the risk of increasing interest rates and subsequently higher repayments. If interest rates rise, you are fixed on paying the lower rate. Conversely, if interest rates should fall, you are locked into the fixed rate and will pay above market rates for your home loan.

A variable interest rate home loan allows interest rates to fluctuate with the market, depending on the economic environment.

Initially, a variable rate will be lower than the fixed rate loan. However, if interest rates do rise in the future, it is likely the fixed rate loan will be cheaper.

Deciding whether a variable or fixed rate loan is best for you will come down to your unique financial situation. For example, if you expect your income to rise in the future, then a variable rate loan will help you to pay more back in the short term and should rates rise, you can still afford the loan because of your increase pay. You should also consider your risk tolerance. A fixed mortgage lets you plan and budget sometimes years in advance to make sure you can continue to afford the loan.

If you need help identifying which loan option is best for you, contact a Mortgage Plus broker for an obligation-free discussion. Your broker will advise you on the various options and benefits of different home loan products and work to get you the best deal on your loan.

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

In South Africa today more households have mortgages than ever before. In fact, the chance of you having or knowing someone who is paying off their mortgage is greater than 50%.

You would think that because they are so common most people would have a good idea on how they work. Surprisingly that is not the case, in fact the majority of people who are currently paying off their mortgages know little more than their monthly payment information. In this market, it pays to be an informed consumer.

So what should you know?

Mortgage advice number one?

What can you afford and how much do you need. Before you ever step into a bank or fill out an online application you owe it to yourself to spend some time to analyze what monthly payments you can afford and how much money do you really need. The best advice for this step is that it pays to overestimate. Over estimate your expenses and over estimate how much you will need. Inevitably unforeseen things will happen while you are paying off your loan and it is much easier to cope when you have a buffer.

Mortgage advice number two ?

Shop around. This step may seem obvious but most people are paying a higher monthly payment than they have to. When dealing with a broker or a bank makes sure you take a notebook and write things down. Don’t be afraid to ask questions, you will be the one making the payments after all. Don’t let yourself be swayed by the hype of a TV commercial or the convenience of the bank down the street. The best advice is to shop around for your mortgage.  I suggest you contact at least ten different places before you start to settle on a choice. This step can make the difference in thousands of Rands so take it seriously, and don’t be afraid to negotiate the terms either.

Mortgage advice number three?

Don’t miss a payment. If you have taken my advice up to this point, you should never have a problem missing a payment. However, if something does happen and you see that you may not be able to make this months payment, take my advice acting sooner is better than later. If at all possible before you miss a payment contact your lender. Lenders are only looking to regain their money and do not benefit when you are unable to pay. For this reason you may often be able to work something out with them before things go too far.

There are also a number of programs available today which may be able to help you before they thought of default or bankruptcy enter your mind.

If you follow this mortgage advice you should find yourself able to comfortably take out and pay back your mortgage with ease.

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