Hints for house buyers
For many South Africans, buying a house or flat is one of, if not the biggest, financial investment they will make. “Everyone needs somewhere to live and, in most cases, I would advise people to buy, rather than rent, as they’re investing in their own futures as opposed to paying off someone else’s mortgage,” says Bruce Swain, CEO of Leapfrog Property Group.
“That said, buying a house is an expensive undertaking and buyers need to be sure they can make the monthly bond repayments.”
Even with the best budgeting in the world, the unexpected can happen and homeowners could find themselves in a position of not being able to make their monthly mortgage repayments.
“The first thing people need to know is that the banks do not want to repossess their homes – that’s a last resort. It makes a lot more sense and saves a lot of money if a lender keeps making payments,” says Swain.
The best course of action is naturally not to get into arrears in the first place and there are a number of things homeowners can do, both before buying and once the property has been transferred:
Pay a larger deposit
“Making a bigger down payment will mean buyers will need a smaller home loan and can negotiate for better rates as they’re negotiating from a stronger position,” advises Swain.
Secure a lower interest rate
When applying for a home loan, it’s generally a good idea to shop around to see what the different banks offer – negotiating a low interest rate, when possible, can do much to decrease costs on a month-by-month basis.
Pay a little extra each month
“The more money you can pay into your home loan per month the better. Even R500 extra per month can make a big difference,” says Swain. “If a buyer purchases a property for R1.2 million, with a deposit of 20%, with a repayment at 11% over 20 years, it will cost the buyer R9 819 per month (excluding interest and municipal rate fluctuations). However, if the buyer increases their repayment by R500 per month the term reduces by three years, with a saving in interest of R251 484. Increasing the repayments by R1 000 per month, reduces the term by five years, saving the buyer R409 140.”
Pay attention to the repo rate
The Reserve Bank’s monetary policy committee meets every three months and it is normally clear whether they’re embarking on a hiking or lowering cycle during the year. “If it seems likely that the repo rate will increase, home owners would be wise to budget for the increases – paying in extra where they can to help alleviate a price hike,” says Swain.