Mon. May 20th, 2019

What you need to know about the different types of homeloans

types of home loanGetting your finances in order is one of the important steps before offering to purchase a home. After that, things can get confusing. Here’s what you need to know.

what you need to know about the different types of homeloans - What you need to know about the different types of homeloans

mortgage - What you need to know about the different types of homeloans

If you are a first-time home-buyer this will see you introduced to a concept called a mortgage loan/bond or simply put, mortgage.

A mortgage bond is a bond secured by a property, usually residential. A mortgage is a debt instrument, secured by the collateral of specified real estate property, that the borrower is obliged to pay back with a predetermined set of payments.

In a residential mortgage, a home buyer pledges his or her house to the bank.

It can all get a bit confusing, so let’s take a look at the different options available.

The most common is a variable interest mortgage bond.

This type of mortgage bond is a type of home loan in which the interest rate is not fixed. Lenders can offer borrowers variable rate interest over the life of a mortgage loan. They can also offer an adjustable rate mortgage which includes both a fixed and variable rate.

The monthly payments can therefore go up or down accordingly. The initial interest rates for variable rate mortgages are generally lower than those of fixed-rate mortgages.

Fixed-rate home loan

A different type of mortgage bond that works in complete contrast with the variable interest mortgage is the fixed-rate mortgage (FRM). A fixed-rate mortgage, which is often referred to as a “vanilla wafer” mortgage loan, is a fully amortising mortgage loan where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or “float”.

Capped home loan

The capped rate mortgage bond allows for a bit of a variable interest rate too. Like the variable interest mortgage, the capped rate is an interest rate that can fluctuate, but which cannot surpass a stated interest cap. The capped rate has an interest rate ceiling, or cap, beyond which your payments can’t rise. A capped rate loan issues a starting interest rate that is usually a specified spread above a benchmark rate.

And the rest…

It is important to note that all mortgage bonds/home loans in South Africa have a 20-year loan term (in other cases 30 years). The bond repayments must be serviced from a South African rand denominated bank account. For contract workers, immigrants and refugees, a loan amount of up to 100% of the value can be approved. For non-residents, a maximum loan amount is up to 50%.

There are several financial institutions that supply residential mortgage bonds in South Africa. These include institutions such as SA Home Loans, Standard Bank, Nedbank, Absa and FNB.

There are also deposit requirements before securing a home loan. Many buyers have taken the view that they should take advantage of these lending conditions and secure a home loan with whatever deposit they have, rather than wait to save more and risk stricter lending conditions, higher home prices or interest rates starting to rise again.

It is also important to note that when you factor a deposit component in your buying decisions, you are more likely to buy a home closer to what you can realistically afford.C

Getting a mortgage bond/home loan allows you to get a few steps closer to your first dream home. When deciding on a mortgage, it is beneficial to use a mortgage calculator, as these tools can give you an idea of the interest rates for the mortgage that you are considering.

At PropertyFox, we would love to help you understand everything when it comes to buying or selling a home. Call or email us today, and we will take it from there.

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