In South Africa the major banks all distinguish between 2 available options, depending on your financial circumstances. Within these you have various bond options and terms which provide you with a considerable amount of flexibility. The current interest rate is the single most important influencing factor determining how much you pay on your mortgage bond each month. Your options are listed below…
THE VARIABLE INTEREST RATE HOME LOAN
- Most common of home loans granted
- Interest rate on this home loan varies with the current interest rate, it is not fixed.
- Interest rate linked to the base home loan rate
- Base home loan rate fluctuates
- If base rate increases, so does your home loan rate. If base rate decreases, your home loan rate decreases
THE FIXED INTEREST RATE LOAN
- Granted at a negotiated interest rate.
- Interest remains fixed for an extended period, usually 1-2 years
- Only applicable once your bond is registered, you must then apply at your bank to have your rate fixed.
- As rate is fixed, the rate paid is higher than the current interest rate
- Keeps you immune from interest rate hikes
- Security for the consumer, as you will know exactly how much you will pay each month
- If interest rate drops your rate remains the same, no benefit of possible decreases
THE FIRST-TIME HOME OWNERS BOND
- Banks lend more than 100% of home purchase price, only under certain conditions
- Designed to target low cost market, for example if your joint income falls under R20 000 and the purchase price is below R450 000, the loan will include transfer and registration fees.
- Any amount over R600 000 will not include transfer and registration costs but only the bond cost.
- Designed to help first-timers get into the property market
- No deposit required
THE SECOND BOND
- The second bond is also referred to as a “further loan”or “re-advance”.
- You may only apply for a second bond if you have a first bond already registered.
- The second bond is an application to obtain additional monies over and above the amount you owe on your first bond.
- Lenders all have various requirements and stipulations for granting second bonds.
- The basic requirements are that your current home loan repayments are up to date.
- There should be no arrears and your payments should all have been made on time.
- The banks will perform a credit check to evaluate your overall indebtedness and then determine whether or not you can afford the additional mortgage repayments.
- Once you’ve been granted the loan, you may use the funds as you choose.
- For example, alterations or add- ons to your home, thereby increasing the value of your home or for other personal use.
THE FUTURE USE BOND
- The future use bond is a loan taken for exactly that which it is called, future use.
- Register a bond with higher value than the actual home loan amount needed, thus enabling you to access the surplus funds at some stage in the future
THE BUILDING BOND
- Available for those who are going to build their home.
- Once building reaches completion the building bond reverts to a normal bond
THE ACCESS BOND
- A bond that doubles as a money management facility
- Allows you to deposit and transfer surplus funds into your home loan to be accessed as required
- This type of home loan account could also link to other accounts you may have with the lender
- You may use the surplus funds as you wish; for your child’s tuition, a vacation, paying off your vehicle, home improvements or paying off your bond faster.
- You would have to request a recalculation of your installments.
Contact a reputable bond originator to find the home loan with terms that best suit your financial situation. Home loan repayment terms vary between 15, 20 and 30 years. Interest rates are calculated at a yearly percentage of the monies borrowed from the bank. The current base home loan rate is 13.5%.
The current home loan interest rate is at 9%. If you have a solid credit record and have the financial means, you may qualify for 2% below the current rate. Remember that the longer your loan repayment term, the more interest you are going to pay. Making small additional payments to your monthly instalments can help you pay off your home loan a lot sooner.