Home Loan Basics

Since the introduction of the National Credit Act in June 2007 (NCA) the ability to obtain bond finance is a lot more challenging. Prior to the NCA, all financial institutions would base their decisions on a customer’s gross monthly income, and not take into account what expenses the client might have.

These days the major factor for qualifying for a home loan is the net surplus income that a customer has, calculated as follows > Net Income less monthly personal expenses. If the client’s surplus income is more than the new bond instalment then there is a good chance that the bond will be approved.

Another important factor to remember is Repayment to Gross Income (RTI), calculated as follows > New bond instalment / Gross monthly income. A good RTI factor to work with is 30%, anything more than this can cause a bond to be declined due to high exposure.

When buying a property the buyer is liable for bond & transfer costs. The new transfer costs are calculated as below, as from March 2011:

• Value of property: R0 – R600 000

Rate: 0%

• Value of property: R600 001 – R1 000 000

Rate: 3% of the value above R600 000

• Value of property: R1 000 001 – R1 500 000

Rate: R12 000 plus 5% of the value exceeding R1 000 000

• Value of property: R1 500 001 and above

Rate: R37 000 plus 8% of the value exceeding R1 500 000

The seller has the right to nominate the Transferring attorneys and the buyer has the right to nominate the bond attorneys.

Interest rates are based on loan to value %, therefore the higher the loan to value the higher the rate for example:

If a client is buying a house for 1 million rand, the bond amount is R 1 Million then he will receive a higher rate than if he put R100, 000 as a deposit and only obtained a 90% bond of R900, 000. Therefore is it always advisable to have a deposit in order to receive a better interest rate.

Full Time employed (Payslip) people have different document requirements and lending criteria compared to people who are Self Employed (Own Company).

It may sound complicated, but it is important to understand these concepts before buying a house. The current prime interest rate is 9%, and all depends on that. It is good to build up a bit of credit, so that you have some repayment history with the banks.

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