The real cost of your home loan

Private Property South Africa
Martin Hatchuel

You’ve found the home you want, you think you can afford it, and you want to dive right in and apply for a mortgage bond. But what will that bond really cost you?

“As with everything, it depends on a number of factors - but you can work it out quite accurately with a bit of knowledge, and with the help of our online resources,” said Kelly van de Venter, a bond originator in the Garden Route office of BetterLife Home Loans.

BOND COST

Kelly said that raising and registering a bond comes with certain pre-defined costs - but that companies like hers don’t charge for services like helping you to apply for a home loan, submitting your applications to the banks, negotiating for the best interest rates, and tracking the status of your application.

“You need to consider the regulatory costs - you’ll have to pay for the bond registration and for the transfer costs - and you also need to remember that the banks charge a bond initiation fee of R 5,985.00,” she said. (An online calculation of the bond registration fees and property transfer costs on an R 800,000.00 loan revealed a budget figure of a little less than R 38,000.00. This amount might fluctuate.)

LOAN COST

Kelly said that the interest rate on your bond will depend to a certain extent on whether or not you’re going to pay a deposit.

“A 100% bond will attract a higher rate of interest, but the bigger your deposit, the lower your rate is likely to be.”

Depending on the bank’s credit criteria, first-time homeowners who are also permanent, salaried employees could qualify for bonds of up to 100% - or, in rare cases, even up to 105% (the additional 5% to cover the registration and transfer costs).

“But in our current financial climate most banks require a deposit - and in some instances for self-employed clients this could be up to 20%,” said Kelly.

So, using the Repayment Calculator on privateproperty.co.za, we see that the monthly repayments on an R 800,000.00 bond at 9.25% will come to R 7,326.93 (for a total loan amount of R 1,758,464.32 - and a total interest amount of R 958,464.32).

AFFORDABILITY

“It’s very important to know what your monthly repayment is going to be,” said Kelly. “Each bank has its own formula for working out RTI (Repayment to Income), but the maximum would be 30% of your gross monthly income.

“Once your RTI is known, the bank will then calculate your living expenses (groceries, insurance, rates & taxes, etc.), and from this obtain a surplus figure that will determine whether you can afford the loan. (If you want to simulate the exercise, you’ll find an affordability calculator here).

Kelly said, too, that the banks will insist that you carry homeowners cover (HOC) on the entire property - enough so that the insurance company will pay for a complete rebuild of the improvements if it should happen that they’re totally destroyed.

Note that the bank may allow you to cede your own HOC policy - if you already have one - and, depending on the vetting process, that you might also be required to carry mortgage protection (i.e. life insurance to the value of the outstanding amount).

RATES & TAXES

Finally, you’ll need to know what your rates and taxes, levies, water and electricity costs are going to be.

“Which is another reason why you should work with a good real estate agent*: he or she will be able to help you find and verify this information for the property you want,” said Kelly.

“Affordability + an excellent score = a successful application,” she said.

*Visit privateproperty.co.za to find an agent in your chosen location.

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