Home Loans 101: Everything You Need To Know About Bond Financing In South Africa
Home loans help you to afford and live in the house of your dreams. But when it comes to finances and bonds, there are a lot of terms and conditions that can be a little tricky to understand. Which is why we have broken down everything you need to know about bond financing.
You’ve finally decided on the home of your dreams, but you don’t have the cash to buy it yourself. Which is where a home loan comes in…
Tell me more about what a home loan is
The first place to start is to define what a home loan is. A home loan basically helps you afford your dream home without you having to find the cash upfront out of your own pocket.
This means that a lender (typically a bank) will help you to finance the price of the property. They provide you with a loan to pay for the house. You will then pay them back this amount plus interest in instalments over a certain period of time.
The bank will then keep the title deed for the home until you have paid them back in full.
There are 2 important elements of a home loan:
- The repayment period: This is the period of time you have to repay your loan. The typical repayment period is 20 or 30 years. It is also possible to pay off a bond in as little as 10 years.
- The interest rate on the home loan: This is the bank’s way of charging you for the risk they are taking in lending you the money. This amount is added to your monthly instalment fees and is determined by the institution lending you the money.
How do I secure a home loan?
Once you have found the home you want to buy, then you need to apply for a home loan.
This is either done through your bank or you can get help from a home loan comparison company who can apply to multiple banks for you.
The bank may reject or approve your application. If they reject your application, then you can try to get approval from another bank.
Finding the right home loan is an important financial step to take and one you should take very seriously.
How can I find a good deal on my home loan?
It’s normal to feel a little overwhelmed when it comes to comparing all the different home loan options available to you.
The trick is to compare the different interest rates offered to you as this will determine how much you are going to pay back to the bank over the term of the loan. This amount is an additional figure to the cost of the actual property.
There are two different factors you need to take into consideration when comparing home loan options:
- The current prime interest rate: This is linked to the SARB (South African Reserve Bank) REPO rate.
- The specific lending criteria outline by the bank you are applying for a loan from. They will also take into account how high your risk factor is based on your credit score.
What can I do to get a better interest rate?
Put down a deposit
The first thing you can do is save up some money to put down a deposit on the property. This is an amount of money you will pay upfront for the house. The bigger this amount is, the smaller your home loan will be and the less you will pay back every month. This also means you are a lower risk in the eyes of the bank.
Improve your credit rating
A better credit score lowers your risk profile and gets you a better interest rate. Your credit rating informs the bank how likely you are to pay back a loan based on your credit history.
Shop around for better deals
Make sure you spend some time researching what options are available to you and find a bank that can offer you a good interest rate and loan package. This is why a home loan comparison company is a good idea to help you get a great deal.
Make sure you are covered with home insurance
Once your bond is approved you will need to insure your home and the content inside of it in case anything goes wrong. Can you imagine paying off a bond and having to pay for the costs of items stolen in a robbery or damaged in a fire?
With Oneplan, we let you choose how much cover you want using flexible home insurance. This means you can choose a certain percentage of cover you want and tailor this according to your budget.
Yours in hassle-free household insurance,