Affordability and Your Homeloan

Affordability and Your Homeloan



Affordability is critical when applying for any form of loan.


Always we have to live within our means but sometimes because we want something so badly we end up spending more than we can afford. Well not in home loans as the banks came up with a strategy to make sure that this does not happen.


The banks, Standard bank, FNB, Nedbank, ABSA all use a ratio which they call the repayment to Income ratio (RTI). This is the percentage of a consumer's monthly gross income that goes toward payment of the bond or home loan and it is 30% maximum, or 30% of your monthly salary. I would say it’s better to find out how much you qualify for beforehand – before you waste your and the agents and everyone’s time only to find you do not qualify.


Let’s say you earn R15000.00 per month and want to know how much you qualify for?


Here is an affordability calculation for you;


Calculates the maximum bond you qualify for based on your monthly income


Date: 2011/04/11


Information Provided Calculated Results


Property use: PRIMARY / MAIN RESIDENCE


Interest/Base Home loan rate: 9.00 % Affordable loan: R 500,152.29


Monthly repayment: R 4,500.00


Customer rate: 9.000 %
Repayment-to-income ratio: 30.00 %


Gross monthly income: 15000.00


Net monthly income: 7000.00


Gross monthly expenses: 8000.00


Bond term: 240 months or 20.00 years






According to this calculation you do qualify for the bond of R 500,152.29 and remember you still need money for the transfer and registration fees as well as a bank initiation fee, so budget carefully.


However, let’s say for instance you did not qualify for the bond, what were the options?


The obvious one will be to look for a property within your range. It may happen that this is your dream home and you wouldn’t trade it for anything, then you can either look for a co-applicant to come in with you and jointly you qualify. You have to bear in mind that the co-applicant’s credit record should be good because even if it’s a co-applicant you will be declined if the credit record is bad.


If you don’t want them to be a co-owner on your property then they can have a family member stand surety. With surety ship, the one standing surety has to qualify for the bond on their own and the credit record or score has to be good according to the banks criteria. This is where we say terms and conditions of banks apply.


That is not all, Globalfundi have introduced a new product called the Home Starter Loan which is aimed at helping you get you dream house. This is a mortgage aligned loan which only a person with bond which has been granted can apply for and you can apply for up to R70,000.00 which you can use to pay the difference or to pay the attorneys fees. This could give you that elusive 100% loan you are looking for.


They say the beauty is in the eye of the beholder and I say today know what you afford so that you can experience the beauty of owning your property as it is all in your affordability.

L Your mortgage consultant

SA Homeloans - CEO - Simon Stockley - Integer

Integer Bond Originators

After a long time away from South Africa, one of the founders on mortgage origination, the first man to bring securitisation into the home loans market and the ex CEO of SA Homeloans Simon Stockley has come back with a new product on the S.A. market - INTEGER.

What is this product and is there something new that Simon Stockley is bringing into the South African mortgage market, check out the interview on MoneyWeb with Integer's CEO, Simon Stockley.

Is it the end of SA Home Loans?

Has anybody used Integer bond originators?

SA Homeloans - Who, Why, What?

Well, my whole idea when starting this BLOG was to write about the different homeloan companies, banks and property agencies. Talk about those who are bullshitting, those who are cheating people out of money but at the same time giving those credit when credit was due. SA Homeloans, you're going to be the first of the home loan companies. The reason I've chosen you is:

1. You're always in the public eye
2. You're one of the few "controversial" companies in South Africa
3. There's loads of questions and queries I have...

I hope that someone at SA Home Loans reads this and helps shed some light on questions that not only I have but that many people have asked me to post up on this BLOG this evening. As a matter of fact, they're all sitting here behind me ;-)

SA Homeloans JIBAR rate

SA Homeloans have a great reputation for having some of the lowest interest rates out
there... That's a given and it's a known fact amongst mortgage originators. What most people don't know is how they can offer such low rates.

SA Homeloans differ from your normal mortgage origination companies. Instead of relying on the interest rates that the bank offer most originators, SA Homeloans's funding comes from something called the JIBAR rate. The JIBAR rate is the 3 month interbank agreed rate. This is the average interest rate at which banks buy and sell money. The average is calculated by SAFEX on the securities exchange as the average rate quoted by the various major banks in South Africa. This rate normally sits at around 9.1%. What this means, is that SA Homeloans are able to buy money at a rate of 9.1% thereby allowing them to offer people loans and mortgages at rates allot lower than those of the banks. In actual fact they should (and I stand to be corrected) be able to offer rates at 2% lower than the banks can offer you.

SA Homeloans - FACTS!

1. They only offer home loans. They do not offer further loans or further advances on your additional home loan.
2. Loan amount (Loan To Value Ratio) may not exceed 95% of your property value.
3. They have loyalty incentives where they offer you a 0.6% drop in your bond after being with them for 2 years (Kind of shows you how much money they're making)
4. They offer a 50% discount on legal fees


WHAT YOU DIDN'T KNOW ABOUT SA HOMELOANS

Well firstly because Homeloans SA rely on something called the JIBAR rate, they are at the hands of the securities exchange. This rate changes every 3 months. So let's say for the first 3 months you're offered a rate of 10% (not fixed). 3 months later they purchase more money but the JIBAR rate has jumped up by 0.3%. Automatically and you won't even know this until you get you bond statements, you're monthly repayments jump up by 0.3%. For those people, who are a but short of cash, and probably thought this sounded like a brilliant idea and an awesome rate, if you're living on the edge every month and you can barely make you're bond repayments, 0.3% increase in your repayments for the next 3 months WILL HURT YOU! Should this rate go up again in 3 months time, you're looking at a 0.6% increase. It's their way of making money and it's something that they don't explain to clients when they sign up... It's basically the "read between the lines" portion of their TV Ads. Don't get me wrong, things swing both ways, but this will catch you at some point or another...


SA HOMELOANS INTEREST ONLY PAYMENT OPTION

This ladies an gentleman is the biggest NO NO in the history of mortage origination. By offering people the option of only paying the interest portion of your bond, they are automatically putting you into more debt. IF you EVER have any extra money at the end of the month, the bond is the account you want to put that money into... They even give you an example; According to SA Homeloans on a R500 000 bond at an interest rate of 10% your monthly repayments will increase by R360 every month. This is ontop of your monthly repayments that you owe. Work that out over 20 years. Plus, just imagine the JIBAR rate increases by 0.6% over the next year, that's going to hurt you...

Don't get me wrong people, this company is great and they do offer awesome rates. They also have a winning formula which is what makes them one of the most successful mortgage origination companies in South Africa, but I believe people need to weigh up their options and just be careful before falling for the "WE CAN GIVE YOU 2.5% BELOW PRIME GUARANTEED".

Related SA Homeloans Interest Only Articles:

Interest only pitfalls

Load of Love
WIZARDMAN Out!

More SA Home Loans news:

- http://www.persfin.co.za/index.php?fSectionId=592&fArticleId=3815478