Empowering home loan applicants with essential financial insights, expert advice, and practical strategies
Cash-strapped South Africans, reeling from a series of economic blows like power and water outages, job insecurity, inflation, dire economic performance and no growth, are finding it harder than ever to secure their financial well-being and that of their families. But by making the right money decisions now, it’s possible to achieve more of your future visions.
Typically, home buyers take out a loan that covers the shortfall between their cash deposit and the purchase price exactly, and then begin paying it off. But as any homeowner would know, the expenses don’t stop there. Any home will need a certain amount of maintenance later, for example, a new coat of paint, fixing of gutters or roof repairs.
And it doesn’t end there. Once you’ve lived in a house for much longer, an obvious improvement usually suggests itself: a better layout of the kitchen, a bay window in one of the bedrooms or new tiles in the bathroom. Also, as your family grows, you may need a proper place to do homework or a playroom for energetic teenagers.
The long and the short of it is that maintaining and improving your property investment is ongoing. Having a plan in place to finance these needs at a later stage in your life is recommended.
For most of us, we would likely need to take out an additional loan on the house to finance repairs and improvements. One of the best ways of planning your lifestyle proactively is to be smart when securing what will be one of your biggest investments: your home.
We know that registering a home loan is already expensive. What we often don’t realise is that deciding at a later stage to take out a further loan on our bond will incur another round of registration fees. For example, when you take out an additional R300 000 loan on an original bond of R1 million, this will incur fees of around R11 400.
Tips for home loans
Renier Kriek, MD of Sentinel Homes, a non-bank home loan provider says first time home buyers are progressively becoming older because of affordability. It has moved from around 30 to 32 years to around 38 to 40 years.
It is now a buyer’s market. Kriek explains that South Africa is coming off from a high-inflation-high-interest-rate cycle. “Inflation has become a more manageable beast, and market watchers are starting to predict a decline in interest rates next year.”
Time the market
Unfortunately, very few people act until they see the first rate cut. By then the cat is out of the bag and the market will change quite rapidly. “If you want to time the market you have to buy now.”
He also suggests that prospective buyers use a bond originator to get prequalification for a home loan. “It shows that you are a serious purchaser, which makes everyone so much more willing and able to help.”
Real estate, whether it is your own home or an investment property, comes with expenses and tax consequences. However, if you do not want to live from wage-to-wage for the rest of your life then some sacrifices are called for to enter the property market.
“Every goal has some sacrifices and the sacrifices for financial goals are of the living standard kind. If you want to truly benefit from asset ownership you will have to suffer some short term discomfort. That is reality.”
Take the leap
- Save for a deposit; it gives you leverage to negotiate a lower interest rate.
- Research; look at tenant vacancy rates and payment behaviours in different areas.
- Be astute, notice and make use of financial opportunities.
- Don’t get too bogged down in the preparations; at some point you must take the leap and buy.
- Don’t underestimate the power of leverage. That is using other people’s money to ramp up your investment returns. Residential property is the safest way to use leverage to create wealth.
- The magic of compounding means the sooner you start the better.
There is a smarter way. Take out a bigger-than-needed bond when you purchase a house and keep the extra money in reserve for financing future home needs. The bonus is that you won’t pay for the extra money until you use it.
When you take out a home loan with Nedbank for example, specify that you want to take advantage of HomeVision. You will be able to register the bond for up to 30% more than the property price, up to a maximum of R7,5 million. At this point, you will use only the money you need to complete your purchase, and your repayments will show only the amount you have used. The remaining loan amount will be registered at the deeds office and you can use this money later without additional attorney fees or applying for a second bond.
Making good money decisions like this one can help save you money and time for those future home needs.
