What is a mortgage/bond/home loan?

Private Property South Africa
Property Power

A mortgageable property allows the buyer to apply for a home loan by using the property he buys, as security for obtaining the home loan. In other words, if you don't repay your home loan, the bank will take your property to recover its losses. Home loans are usually repayable over 20 years. Some banks allow you to pay it over a period of up to 30 years, depending on the amount of the loan and your financial situation, but this is a costly alternative in the long run.

Sourcing the finance with which to purchase your home

There are very few people who are fortunate enough to buy a home for cash. Most people have to borrow money from a financial institution:

Banks : Home loan finance is a major part of a bank's business.

Building Societies : Building societies used to be financial institutions registered in terms of the Building Societies Act 24 of 1965, and were then the main source of finance for home loans. All but two building societies were later converted into banks.

The Building Societies Act (later renamed the Mutual Building Societies Act) was finally repealed in 1993, and the two remaining building societies were then converted into mutual banks registered in terms of the Mutual Banks Act 124 of 1993.

Strictly speaking, therefore, there are no longer any ‘building societies’ in South Africa; only banks registered in terms of the Banks Act 1990, and mutual banks registered in terms of the Mutual Banks Act 1993. The expression ‘building society’ is however, still commonly used in practice and refers generally to a financial institution that can be approached for home loan finance.

Other Financial Institutions: These institutions are not banks, although they specialise in home loans. They fund loans through the process of securitisation, and often charge a once-off admin fee instead of monthly admin fees.

There are different kinds of home loans

All the banks have different home loan products, some are for first-time home buyers, others have an access facility, meaning that you can access the surplus money in your home loan. There are many other home loan options available. Ask your banker to explain all the different options to you, so that you can choose a home loan that is suited to your individual needs.

What is a residential mortgageable property?

Residential mortgageable properties are those located in any residential suburb in the Republic of South Africa.

Mortgageable properties include:

  • Vacant stands;
  • Dwellings still to be constructed;
  • Houses (also in security estates);
  • Holiday or second homes;
  • Cluster homes;
  • Sectional title units;
  • Flats;
  • Townhouses;
  • Semi-detached houses;
  • Duet houses;
  • Residential property used for business purposes;
  • Agricultural Holding (up to a maximum of 8,5 hectare).

Mortgageable properties do NOT include:

  • Farms;
  • Agricultural Holdings (in excess of 8.5 hectare);
  • Blocks of Flats;
  • Share block schemes;
  • Timeshare (where you do not actually own the property); -An unconventional construction.

This article originally appeared in Property Power 11th Edition Magazine. To order your copy at the discounted price of R120 click here

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