Certain things in life just aren’t fun – getting your legs waxed, going for root canal or dealing with bank managers, especially if you’re asking them for money! Getting a home loan is one of the biggest, if not the biggest, decisions you will ever make. Not only will this be the biggest debt you are ever likely incur but it’s also a decision that will live with you for the next 20 to 30 years.
What is a Home Loan?
A home loan is essentially the bank giving you money with the idea that you will pay it back to them over an arranged period of time. They attach various stipulations to this money such as length of loan, monthly installment costs and interest incurred on the loan. When getting a home loan, make sure you understand every single part of the loan agreement before signing.
In South Africa most banks will generally not loan out the entire value of the house. They will usually only grant you a 70-80% loan, dependent on the value of the house. This leaves you need a deposit of some sort to cover the remaining percentage of the house. These types of “hidden” costs often derail first time home buyers so ensure you have all your financials in check before you start looking for your new home.
[blockquote]Remember – when choosing your home loan the best thing you can do is be as knowledgeable as possible. Learning all you can about the application process, how your monthly payments work and whether or not you have a fixed bond will help you choose the best path when deciding your long term financial future[/blockquote]
Bonded for Life!
The length of your bond can last anywhere between 20 and 30 years. The most important thing to remember when getting a home loan is that the longer the agreed upon loan duration is, the more you will end up paying for your house. On a bond of R1-Million, choosing to pay over 30 years instead of 20 will cause you to pay back the value of the house twice over. Another thing to check before signing is whether or not there is an early repayment penalty. This usually comes into the picture when you sell the house and pay off the remainder of the loan with the proceeds of the sale. Check with your bank about what penalty costs you could incur should you choose to sell and settle the debt early.
Fixed or Not?
Choosing to fix your bond is essentially a gamble. By fixing your bond you have chosen to keep the same interest rate for the length of the bond, regardless of how the national prime rate fluctuates during your loan term. The gamble comes in if the country you are living in goes through a sustained period of economic stability and the prime rate drops a few points. This would leave you paying the same rate, while unfixed loans will pay less each month.
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