Question and Answers regarding Home Loans in SA

Q: I am in the process of buying a home and require a bond. My first thought was to apply directly with my bank, however a friend told me about something called Mortgage Origination. What is Mortgage Origination and why do I need a mortgage originator?

A: Mortgage origination is the business of negotiating a home loan with a bank on behalf of a prospective property owner. Mortgage originators give you independent advice on choosing a home loan and help you obtain it without the hassle of doing all the legwork yourself. Some originators, like Mortgage Plus, offer services that may help a buyer, like advice on estate agents in the area, how to complete the sale agreement, etc.

Because your home purchase is probably the most expensive one you’ll make in your life, the home loan itself is an important financial decision and the benefit to be gained from making the correct choice can amount to savings of hundreds of thousands of Rand over the life of the loan.

Q: I am confused. What is a Variable Rate Loan vs. a Fixed Rate loan?

A: With a variable rate loan, your interest rate is linked to the base home loan rate which moves up and down depending on market conditions. If the base rate decreases by one percent, so will your interest rate, and of course if the base rate increases so does your home loan rate.

With a Fixed Rate Loan however, your interest rate is fixed for a specified period, generally between one and two years and is generally slightly higher than the base home loan rate when the loan is taken out. A fixed rate loan protects you from rising interest rates and gives you the certainty of knowing exactly what your payments will be. Bear in mind however that it does not allow you to benefit from any decreases in the interest rate over the fixed period.

Q: My husband and I are expecting our third child so we are in the market to buy a new, bigger home but with the current interest rates and uncertainty in the property market at the moment, we really need sound advice on whether to buy a new home, build from scratch or renovate our existing home.

A: Whether you are buying an existing home, building a new one or renovating your current abode, taking the first steps towards home ownership is a daunting prospect. Take heart – no matter how intimidating that mountain may appear, scaling it will always be easier with sound advice.

Property’s primary law is position – the area in which the home is located and the market value of the homes within that suburb. Discussing the prospects with family and friends around the braai or the dinner table provides a valuable perspective on the intangible elements of local amenities, community living or double-storey homes when there is a new baby in the crib.

Building and renovating carries the guiding principle – do not over-capitalise the property relative to the neighbours. Simply put: building or extending the property into a five-bedroom mansion with an Olympic-size swimming pool in an area where the bulk of properties have three bedrooms on small plots is not economically sensible.

Conversely, renovating the smallest property in a prime area promises a long-term return that more than compensates for the renovation costs. Essentially, bathrooms and kitchens sell properties so upgrading those assets substantially improves the home value.

There is no substitute for professional advice. Mortgage Plus  is one of the country’s top mortgage originators and offers free advice to home owners and buyers. Whether buying, renovating or building, our consultants can guide you through the process step-by-step, complete the paperwork and arrange and negotiate with the banks a finance package to suit your individual needs.

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

www.mortgagepluscc.co.za

Saving up a deposit for your first property brings great financial rewards.

Over the last couple of years, the banks’ lending criteria have become increasingly stringent, and in particular, deposit requirements have remained high. Some banks have adopted policies of only awarding bonds at a 70% loan to value. That means a deposit of R300 000 required on the purchase of a R1m property, a steep requirement for most prospective homeowners. More recently banks have changed these policies and have become more competitive.

However, the difficulty in obtaining a 100% bond is not the only reason why it is imperative to save up a deposit for a property purchase. Even if you do obtain a 100% bond, you will still need additional funds to cover the many other costs related to buying a property, such as the transfer duties and numerous fees that add up to significant amounts.

Beyond this, however, there are substantial financial benefits to be realised over the longer term, if you can put down a deposit. The bigger the deposit you can make, the less money you have to lend from the bank at high interest rates, and the less interest you will have to pay the bank over the next 20 years. Furthermore, homeowners who contribute from their own pocket to finance a property are considered a lower risk of default to the bank, which means the bank can offer a lower interest rate on the home loan. Even a 1% reduction in the interest rate on your home loan will save thousands of rands over the term of the bond. These savings, in many cases, add up to far more than the deposit amount.

A deposit will also ensure that the monthly repayments on the home loan are lower, which improves your affordability score and allows you to apply for a higher bond amount than you could if you had no deposit.

So when should you start saving for your first property?

From the day you receive your first salary cheque. The sooner you start the better and the reason for this is what Albert Einstein called the eighth wonder of the world: compound interest. While it simply refers to earning interest on interest already earned, the snowball effect compound interest creates in exponentially growing even small investment, given time, is truly a wonder.

For example, if you save just R100 a month over 40 years with a 10% escalation, you will accumulate more than R2m. If you save R1 000 a month – ten times more – over 20 years – half the time – with the same 10% escalation, you will accumulate far less: just over R1.5m.

This is the power of compound interest – growing your money exponentially faster the longer it is allowed to work. As such, the youth have a massive advantage in terms of building wealth, because they have more time to allow the wonder of coumpound interest to work for them. It is unfortunate that so few young people realise the power they hold in their hands to secure their financial future, by saving even the smallest amount every month, and allowing compound interest to work for them.

The sooner you start saving, the bigger the deposit you will be able to bring to the table when negotiating a home loan, and the more you will benefit financially from the savings in the interest payable over the life of the bond, the lower interest rate you can obtain, and the higher value property you can afford. 

However, even if you missed the opportunity to start saving when you received your first salary cheque, it is never too late to start. Start saving right now, and don’t let another month go by in which compound interest could have been working for you! – Adrian Goslett* – 18 August 2010

By choosing Mortgage Plus for a loan, you will get that continual service 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

www.mortgagepluscc.co.za