Buying a home is a dream and goal of many. Yet many consumers do not know some of the basic information surrounding this huge undertaking.
I have taken the following information with regards to home loans from the Absa website, as I found it easy to understand and thought it could be of benefit to our readers.
Fixed vs Variable Interest rate
When your home loan is registered, you have the option to keep a variable interest rate or apply for a fixed interest rate.
Understanding the difference between the two will help you decide which option is best suited to your needs.
Variable interest rate
This is the default interest option on all our home loans.
Your monthly repayments will go up or down depending on the prime lending rate.
You could save money on your monthly repayments if the prime lending rate goes down but you will pay more if the prime lending rate goes up.
Fixed interest rate
You can apply for a fixed rate once your bond account is registered.
We offer fixed interest rates for 12, 24, 36, 48 or 60 months.
Your interest calculations will be fixed for the period you choose.
A fixed interest rate lets you plan ahead because you will know exactly how much you will be paying.
When the fixed interest rate period has expired, your home loan will automatically revert to a variable interest rate.
Which is better for you?
This is entirely up to you and your circumstances. Look at the two different interest options then think about your needs and what you can and will be able to afford.
A fixed rate allows you to plan with your home loan repayments. A variable rate means you could either save or you could pay more.
Like all things financial, the best thing to do is gather as much information as you can, plan your outlook realistically and don’t be scared to get some extra advice.
Before you buy, find out what you can afford.
Know exactly what you can afford and how much your loan repayments will cost you on a monthly basis. Don’t forget about the municipal rates and taxes that you will have to pay monthly too.
Get pre-qualified
Get a certificate from a bond originator to help you understand what finance you may qualify for towards the purchase of a property.
Find a property
When you find the home you want, you will need to make an offer.
Do some research on the prices of houses in the area – is the seller asking too much?
Check out the market conditions – is it a good time to buy?
Speak to an estate agent or property expert for advice.
Look at the size, features and condition of the property – will it need repairs or extensions?
Read the offer to purchase carefully to understand what your rights and obligations are before signing.
Costs you need to consider
To make it easier for you to plan your budget we have put together a list of the costs you will need to pay in order to own your new home.
1. Bond registration fees and transfer fees:
These fees are charged for ensuring that the bank’s mortgage bond is registered, and transfer of ownership takes place. These services are performed by qualified Conveyancers and are done by the bond registration attorney and the transferring attorney (can be the same or different attorneys).
Transfer duty: Transfer duty is applicable when acquiring residential properties that are bought or are valued at more than R1 000 000. It is a tax that is payable to SARS and is based on the purchase price or value of the property.
2. Initiation fees
A one-time payment of R6 037.50 is the fee to initiate the home loan and to open your home loan account.
This fee can be added to your home loan account once your bond is registered or can be paid by you as a once off payment.
3. Deposit (optional)
Paying a deposit is recommended as it means you will only need to finance the balance of the purchase price. It can save you money as you will not need to finance the full purchase price.
If the bank does not grant you the full loan to cover the purchase price, a deposit is payable to the Transfer Attorney, in terms of the Deed of Sale.
Your deposit is the difference between the purchase price and the loan amount of the property. It will not cover transfer duty, bond registration costs, transfer costs and initiation fees – these are costs you will still need to pay.
4. Insurance costs
Homeowners insurance – if you are buying a free-standing property you need this type of insurance before your home loan is registered.
Life insurance will cover your home loan in the event of death, disability (and sometimes retrenchment) – this is compulsory if you have a MyHome Home Loan and is required before registration of your bond.
5. Additional costs
You will be charged a monthly administration fee to maintain your account.
Absa said home loan customers are taking more financial strain than those with car loans.
“The increase in interest rates has been far more severe and far faster than most of our predictions or plans had originally included. Within a period of 12 or 13 months, the interest rate went from 7% to 10.25%, and now it’s at 10.75%. What that has done, over that very short period, has increased a home loan instalment by 38% [in rand value],” said Absa Product Solutions chief executive Geoff Lee.
For more information visit https://www.absa.co.za/personal/loans/for-a-home/understanding-home-loans/