Home Loans – the largest sum of money you’ll ever borrow
The largest amount of money you will probably ever borrow during your lifetime is usually for your first home.
Home loans or mortgage bonds as they are also known, are available through various sources. Most of the major commercial banks offer home loans to qualifying clients. If you have a bank account with one of the big banks, it may be a good idea to approach the Home Loans department when you are planning to buy a home.
The long and sometimes difficult process involved in buying a property can be made a lot easier if you manage to get what is known as pre-approval for a home loan. You will be asked for proof of identity, proof of income, lists of investments and assets held, lists of debts if any. The loans officer at the bank needs to assess your affordability of the loan you are applying for i.e. whether you will be able to pay off the loan on a regular basis. Once you have been assessed and the necessary credit checks have been conducted, you will be called in and offered a loan of a certain value for a certain period of time (perhaps 25 years) and at a certain rate of interest.
The interest rate is based on the prime overdraft rate offered by banks to their clients. This rate is not fixed, and will move up and down many times over the period of the loan. It is critical that you understand this, as most people borrow as much as they can afford to pay back without building in a safety margin in case the rate of interest should increase. You will be told what your monthly payments are going to be based on your net earnings and possibly that of your spouse or partner who intends to occupy the property with you. You will also be required to take out a life insurance policy known as mortgage protection in case something should happen to you and your spouse or partner is unable to continue paying off the bond. You could cede an existing life policy if you have one.
It is not essential that you buy a policy from the lender – you can approach any insurance company or broker and get comparative quotes before signing up. In some cases you may want to take out what is known as an income protection policy which protects you for a limited time in case you are injured, become ill or lose your job.
The amount the bank may offer you is controlled by the National Credit Act. You will not be offered any more than you can afford to repay at the time of applying for the loan, based on the information available. When you eventually start looking for a property to purchase, you will be armed with a letter from your bank showing that you have been approved for a bond of a certain value. This will assist the property agent because it gives the seller of the property confidence that you can come up with the required money if he accepts an offer that you make.
You will usually be required to put down a deposit on a property that you intend to buy. This deposit is the difference between the bond amount granted and the agreed selling price of the property. The deposit will be held in trust by the seller’s attorney and interest will be earned thereon for the benefit of the buyer.