Hidden costs of home-buying

DON’T FORGET: INSURANCE, BOND INITIATION AND REGISTRATION FEES AND TRANSFER COSTS

Then there’s the escalating cost of power and water and municipal rates.

Picture it: walking into a R2.3 million townhouse and feeling like you are at home. But then someone reminds you of the “hidden” costs inherent in property purchases.

Vera Nagtegaal, executive head at Hippo.co.za, says that data from the FNB Home Loans’ affordability index shows how financially trying the current economic environment is becoming – not forgetting the steep increases in municipality and utility costs.

She explains that the electricity affordability component, for example, is the biggest culprit of the disposable income index, having escalated by a massive 86.99% since the beginning of 2008.

Additionally, the weak economy and resultant slower pace at which young people are entering the job market are contributing to the reason why only 12.4% of homeowners are under the age of 30.

Number crunching made easy

“There’s no guarantee that a reputable bank will grant you a 100% bond, so you’ll need to do your research about the deposit required to make the bond affordable, as well as calculate what the transfer fees might be,” says Nagtegaal.

For example, on a property of R1 million, with a deposit of R200 000, paying 10% interest over 20 years, your monthly payment would be around R7 720, with total once-off costs amounting to about: bond registration – R25 607; property transfer – R27 760; and bond initiation fee – R5 985 Your bank will charge a bond initiation fee for processing your home loan application. This is payable on a once-off basis on registration of your bond and will most likely be added to your home loan account. While some banks work on a base fee plus a percentage of the loan amount, others charge a flat rate.

Insurance cover

“Look into and compare the different types and brands of insurance on the market,” advises Nagtegaal.

Some banks require prospective buyers to take out life insurance when purchasing a home of up to R1 million. Nagtegaal adds that it can be devastating when one member of a married couple dies and his or her partner is forced to sell the home because they are not able to afford the monthly bond payments.

“Your bank will specify that you must have homeowners’ insurance in place to cover any potential structural damage to your property, which can be included in your monthly bond payments. While it does vary in amount according to the value of your home, you should also investigate insurance to cover the contents of your home,” she says.

It is important to specify expensive items of furniture and electronics that will be difficult to replace. If you have a similar policy in place for your rented property, be sure to also change the address on your insurance documents when you move into your new home. “Levies, municipal rates and taxes, electricity, an alarm system for your home? These also add up but, overall, owning your own home is arguably one of the biggest achievements of adult life.”