The loan on your home is good debt

Weekend Argus (Saturday Edition) - - GOODPUZZLES -

Not all debt is bad and some is un­avoid­able. Credit to fi­nance an as­set that ap­pre­ci­ates in value, such as a home, is “good debt”.

Very few peo­ple can pay cash for a prop­erty. The vast ma­jor­ity of us have no op­tion but to ob­tain a home loan. But in or­der to qual­ify for one, you need to put down a de­posit. The big­ger the de­posit, the bet­ter po­si­tioned you are to ne­go­ti­ate with the credit provider for a low in­ter­est rate.

Ac­cord­ing to a press re­lease is­sued by es­tate agency RE/MAX this week, in June, the av­er­age first-time buyer put down a 20per­cent de­posit. Con­sid­er­ing the av­er­age pur­chase price was about R860 000, that equates to a de­posit of about R182 000.

Adrian Goslett, the re­gional di­rec­tor and chief ex­ec­u­tive of RE/MAX of South­ern Africa, says banks are ask­ing ap­pli­cants for be­tween 10 and 30 per­cent of the prop­erty’s ask­ing price to qual­ify for fi­nance.

This can be daunt­ing for any buyer, es­pe­cially a first-time buyer.

Goslett says the best way to ac­com­plish big goals is by start­ing small and re­main­ing con­sis­tent. “Moun­tains are climbed by tak­ing one step after an­other. Even if it is a mat­ter of start­ing out set­ting aside small ini­tial amounts, just get started – the sooner, the bet­ter.”

He says the best way to set a monthly sav­ings goal is to find the dif­fer­ence be­tween your cur­rent rental pay­ment and the es­ti­mated bond re­pay­ment, which should in­clude other monthly costs such as bond in­surance, home­owner’s in­surance, rates and levies. If pos­si­ble, the dif­fer­ence should be set aside as sav­ings.

“The ben­e­fits of this strat­egy are two-fold,” Goslett says. “First, it will build up your sav­ings, and sec­ond, it will help you ad­just to the cost of own­ing a prop­erty.”

This strat­egy will re­veal to you, as a prospec­tive buyer, whether you are fi­nan­cially ready to own a prop­erty and what you can af­ford. If you are able to meet your sav­ings goal con­sis­tently, then you will know you have the bud­get to buy. If you strug­gle to meet your monthly sav­ings goals, you might need to ad­just your bud­get and bring it in line with what you can re­al­is­ti­cally af­ford.

Goslett says the first place to look for sav­ings is the prop­erty you are rent­ing. If your rent is more than 30 per­cent of your monthly in­come, it is too much.

“It doesn’t make sense to spend more money on a rental home if it’s hold­ing you back from own­ing your own prop­erty,” Goslett says.

If you’re pay­ing a mod­est rent, as­sess your cur­rent spend­ing and scru­ti­nise ev­ery other ex­pense. You can save by mak­ing lunch ev­ery day, in­stead of buy­ing. Or can­cel that gym con­tract and find ways to ex­er­cise for free. There are many ways to cut back on spend­ing; it just takes some cre­ativ­ity, Goslett says.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.