How much can you afford to borrow?

AS A guide, your mortgage bond instalment should not be more than 25% to 30% of your regular household income before tax and deductions, says Realtors International.

If your income is irregular – for example, you have your own business or rely on sales commission, lenders have their own formulae for calculating what they consider you can afford.

Realtors International provides the following example where both spouses work:

• Husband’s salary (before deductions): R15 700 a month

• Annual bonus (divided by 12): R2 000 a month

• Wife’s salary (before deductions): R12 200 a month

• Housing subsidy: R1 500 a month

• Total household income: R31 400 a month

At a 30% instalment-to-income ratio, this family should be able to afford a repayment of R9 400 a month, which means their maximum loan would be R800 000, based on an interest rate of 13% a year.

OTHER COSTS

When you buy property, you typically need to pay transfer duty, plus a bond registration fee and conveyancing fees.

Transfer duty is normally paid through your conveyancer. The amount depends on the property price, working on a sliding scale: nil on properties with a value of less than R900 000; R65 000 on a property of R2 million; R387 500 on a property of R5m; and R937 500 on a property of R10m.