Introduction

This is purely for an overview, if you have any specific questions at any point please contact an expert.

The home you are planning to buy is probably going to be your biggest asset and your biggest liability. This is not a decision to be taken lightly or without thorough research. Follow our step by step guide to better understand your options and responsibilities.

Who is this guide for?

First time buyers – who do not currently own property and are looking to buy one.

Who is this guide not for?

Remortgagers - If you already have a mortgage and are looking to get a new one that suits your needs better, want to increase your mortgage or simply get a better rate, then you need the  ‘Remortgage Guide’.

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What is a mortgage?

A mortgage is simply a loan that is secured on immovable property, normally your home, hence ‘home loan’. In South Africa a mortgage has been traditionally referred to as a bond. The mortgage is lent to you in a lump sum to pay for the property and is legally bound to the property by the attorneys who register your mortgage bond. You then have to pay back this mortgage over a given length of time, usually in the form on monthly repayments. This time period is usually 20 years, but it can vary between five and 30 years depending on your circumstances.

'Secured' means that if you do not make your payments as you agreed, the lender has the right to repossess and sell your property in order to recover the money they have loaned. In reality, events rarely get this far, especially if you contact your lender as soon as you find out you are having financial difficulties.

The initial amount you can borrow is called the capital, and there are two main ways of repaying this. These are covered below. You also need to pay interest on the capital you borrow, and again there are many payment options you can choose from, but we'll cover these further on. Firstly, it is important to understand how the lenders structure your repayment of a mortgage.

How do the lenders structure a mortgage?

The lenders take the loan required (this is known as the principal sum) and then work out the interest you will owe them over the full term of the mortgage. This is in effect an additional sum you now owe the lender. For example, you wish to borrow R1,000,000 and will repay it over 20 years. Let’s say the interest rate (which can vary through the term of the mortgage) is 10%.

In reality you have now borrowed two loans from the lender. The first is the R1,000,000 principal sum. The second is the interest over that 20-year period. In this case this equals (before any repayments have been made) R2,000,000. This is calculated by the annual cost of the interest (R100,000) multiplied by the term of the mortgage (20 years).

Repayment table

Earning interest on your balance - if you tend to have a significant amount of money in your account rather than being in the red then it may be important to have a bank account that earns you interest on the balance of your account. Different banks will offer different rates of interest or none at all, so make sure you take this into consideration.

How Much Can I Borrow?

One of the first questions anyone asks when they are thinking of buying a property is ‘how much can I borrow?’ This is not an exact science, and all banks have different ways of calculating it. Since the introduction of the National Credit Act this has become an even more complex area, which we have tried to shed some light on in this guide. The most accurate method of establishing how much you are eligible to borrow is to complete an application form and get us do the work for you!

Salary Multiples

A mortgage lender will lend you money based upon what they think you can afford to repay on a monthly basis. The calculation they used to use to assess this was that your maximum monthly mortgage repayment should in general be no more than 30% of your gross monthly income. Therefore if you earned R20,000 per month gross then your maximum monthly repayment would be around R7,000.

However, under the National Credit Act lenders now have to base your eligibility calculation on your monthly ‘disposable income’. To calculate this you need to take your gross income, less all the deductions like tax and UIF to get your net income. Then work out what your total monthly expenses are; like groceries, utility bills, car insurance etc, and add that to all your monthly commitments to any debts you have, such as credit cards, vehicle finance or loan repayments. Subtract this amount from your net income and the amount your are left with is your disposable income - this figure will be the maximum monthly mortgage repayment most lenders will allow. The banks normally add in a bit of a ‘buffer’ for interest rate increases etc, so you will actually need to use 85% of your disposable income figure. You then need to work backward to get the actual bond amount these monthly payments equate to.

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For example:

Net income:     R30,000
Less:       
Monthly household expenses     R5,000
Other credit installments     R2,000
Net surplus income     R23,000

Therefore your maximum mortgage repayments must be no more than 85% of R23,000
banks charge you for withdrawing cash but the amount you are charged will depend on how much you withdraw and where you withdraw it from. You will be charged less for withdrawals from your bank’s ATM but more for withdrawing cash from a branch counter or a Saswitch ATM. When paying in shops with a debit card you may have the option of getting cash back but you will also pay a fee for this.

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The National Credit Act (NCA) means lenders are tightening their credit policy so as not to fall foul of the ‘reckless lending’ as laid out in the Act, which means lending money to people who already have a lot of debt and therefore may not be able to afford to continue making their repayments. This not only means that lenders will start using an individual’s net income for their calculations, they will also look specifically at what other borrowings the applicant has before they make a decision on the applicant’s borrowing eligibility.


For a quick check to see how much you are eligible for please visit our mortgage calculators on our website. Different lenders vary in how much they will lend you depending on their individual assessment of your risk.

Other income - Lenders will take into account other income that you may have, such as rental income, investments and dividends etc. Again, lenders vary in the percentage of other forms of income they will take into account. Therefore you should always speak to your consultant to assess your full range of options.

As a rule of thumb lenders will take into account 50% of your rental income on a rental property. It is up to you as the borrower to prove this income, by showing rental payments going into your bank account and lease agreements. The longer the lease, the higher the percentage of rental income the banks are likely to use.

You can also take into account ‘contributions’ from other family members if they are living in your property. If a partner or child is making a contribution to the ‘family finances’ then the banks will use it. Again, the onus is on you as the borrower to prove this.

Commission - If you are a commission earner the banks will take this into account. However, the best way to prove this to the bank is to provide six months’ payslips and calculate an average for the income.

Annual bonuses - These can also be taken into account, but once again you will have to prove them with entries on your bank statements and a letter from your employer.

Self-employed individuals - It is harder for banks to lend to self-employed workers because it is sometimes harder to prove the income. The better you manage your accounts (and the more accurately) the easier it is for the banks to lend to you. Proof of your income will have to be provided in the form of Audited Financial Statements, latest management accounts and six months’ bank statements, as well as a letter from your accountant verifying your income.

Partner’s /Spouse’s income - If you are purchasing with a partner or spouse then lenders will also take their income into account.

Note: Remember that the banks want to lend you money. That is how they make their money. The banks have come under considerable pressure since the introduction of the National Credit Act, as they have to show they are not lending ‘recklessly’. Therefore it is even more important for borrowers, or future borrowers, to manage their finances as well as they can to make it as easy as possible for the banks to follow your accounts so that they can lend you as much as possible.

Do I need a deposit to buy a house?

Whenever you sign an offer to purchase you will be asked to put down a deposit. This will range from a few thousand Rand to 20% of the property price depending on the seller and estate agent. The act of ‘putting down’ a deposit is purely an act of goodwill and is a show of commitment as there is no legally binding stipulation that you must pay a deposit.

When and who is this paid to?

The deposit is usually paid within a time period set in the offer to purchase. This time period is up to you to negotiate with the estate agent, but the norm is two weeks from signature. Remember that this deposit does not go to the seller; it must be paid into the conveyancing attorney’s trust account. Some estate agents will ask you to pay it into their trust accounts, but this is not recommended as some estate agents have come under criticism recently because of the way they have managed their trust accounts. These trust accounts will be interest bearing, so if your deposit is going to be sitting there for a long time before transfer (for an off-plan unit for example) make sure you ask the attorney what the rate of interest is on the trust account so you know how much you will be earning on it.

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Some lenders will offer loans, particularly to first time buyers, to cover not just the price of the property, but also the additional purchase costs on top such as transfer fees and mortgage registration costs This is known as a 108% home loan (because it is 8% more than the value of the house). Remember that if you are planning on applying for a 108% loan you will probably still have to put down a deposit to secure the property when you sign the offer to purchase. This deposit will only be released back to you on transfer.

The deposit is offset against the purchase price of the property so the additional balance is paid on transfer of the property (normally from the mortgage).

Does size matter?

Generally the larger the deposit (as a percentage of the value of your house) that you put down, the better the interest rate you can negotiate with the bank. This is because lenders know that if you default on your loan and they repossess the property, then it will mean that there is more chance of lenders getting their money back when the property is sold because it should be sold for more than they have loaned you – hence less ‘risk’ to the lender. It also shows the bank that you are investing your own hard earned cash into the property!

Therefore the larger the deposit you put down, the lower the rate of interest you are likely to get. A larger deposit also reduces the risk of you going into "negative equity". This situation occurs when the value of your house falls to below of the amount of money you have borrowed for your mortgage. Negative equity makes it difficult to move because if you sell up, the proceeds will not cover the amount you owe to your mortgage provider, and you would need to find additional funds from elsewhere.

What other costs are there?

An important factor to take into consideration when doing your calculations is the other costs of purchasing a property. It's not just a case of finding the deposit and knowing how much your mortgage payments will be each month. The moment you have found the home of your dreams and have had your offer accepted, you will find that there are other expenses that crop up along the way.

The main additional expenses are transfer fees, conveyancing fees, bond registration fees, valuation fees and initiation fees. We have detailed each of these below:

Transfer Fees - Transfer fees are fees payable to the South African Revenue Service (SARS) whenever you buy a house valued at over R500,000. Yes, it's a tax you pay for the privilege of buying your own home!

It is calculated as a percentage of the purchase price and varies depending on the purchaser's legal status. For a legal person it is 8% of the purchase price. For a natural person the calculation is as follows:

1) For a purchase price of –up to R500,000.00, the duty is 0%

2) For a purchase price over R500,0000.00 and up to R1 million, the duty is 5% on the value above R1 million (I don’t get this as the upper level is R1 million)

3) For a purchase price of more than R1 million, the duty is R25 000.00 + 8% on the value above R1 million

The transfer duty is paid by the purchaser of the property prior to registration of transfer, or within six months after signing the agreement. There is a penalty fee for late payment of 10% per annum pro rata for each completed month after due date is levied.

Bond registration (attorney) costs - The attorney registering your bond charge also fees, which are detailed below. They receive an instruction from the bank that has approved your home loan, draw up the paperwork, do FICA checks and lodge at the Deeds office. Your attorney should be in touch with you within a week of your mortgage being approved, they will also ask you to come into their offices to sign the necessary documents. The fees are on a sliding scale, and your mortgage consultant will be able to inform you how much they will be exactly.

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Please note that Justmoney.co.za partner, BondBusters arrange all of its clients a 40% discount with their bond registration fees. It does this by using collective negotiation with our chosen bond registration attorneys (the fees above are the discounted amounts).

Conveyancing (attorney) costs - The conveyancing attorney is appointed by the seller, but paid for by the buyer. I have always thought this was very unfair on the buyer, but this is the way it is! Again these fees are on a sliding scale that your mortgage consultant can confirm with you, but here is a brief outline.
                   
                  
Bank valuation fees - After the introduction of the National Credit Act the banks no longer charge a valuation fee but have included it in their increased their ‘initiation fee’, as described below.

Bank initiation fees - Under the National Credit Act banks are allowed to charge up to R5,700 for their initiation fees. These vary from lender to lender but expect to pay at least R3,500 and no more than R5,700.


Mortgage broker fees - Mortgage brokers such as Bond Busters are paid a commission from the lender for every mortgage they organise on behalf of their clients. Therefore, the broker who has organised your mortgage should never charge you a fee. If they do try (and some do) find another broker.

Note: Some brokers have been accused of pushing their clients into taking deals with the lenders that pay the most commission. Our consultants are paid on a flat commission basis, so there is no incentive for them to place you with one lender over another, so you can always be certain of getting unbiased advice and the best deal for you.

So, be aware that you may need to find several thousand, possibly hundreds of thousand Rands for the deposit, legal fees and transfer fees - just to get started on buying your own home. The next step is to assess your monthly income and expenditure. Just because someone is prepared to lend you the money, that does not mean you can afford to borrow it!

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What are the different types of mortgages repayments available?

Repayment mortgage - In a typical repayment mortgage the lender calculates your monthly repayments by amortising (spreading out) your capital loan and your interest, so that by the time your mortgage term finishes (20 years, for example) you will have paid off everything. Remember each time you pay off a bit of the principal sum your interest loan is also reduced. Please use the amortisation calculator.

In the beginning, you'll be paying off mostly interest, so if you sell up in the early years you'll find you've hardly paid off any capital at all. But after a few years, you'll be whittling away at bigger and bigger chunks of the capital. Many lenders now offer flexible repayment mortgages too so that you can pay more than the agreed monthly amount when you can have more money available, and even take 'payment holidays' depending on the circumstances.

A repayment mortgage is the surest and safest way to pay off your loan. It is the route to take if you absolutely, categorically, do not want to risk the roof over your head in any way whatsoever. You borrow the money and you pay it back in instalments - it is as easy as that.

Interest only mortgage - With this type of mortgage your monthly payments are only used to pay off the interest on the loan. This means your monthly payments are less but you are never reducing the principal sum and hence you either sell the property at the end of the term and pay off the principal sum or you may have saved enough money another way to enable you to pay off your mortgage without selling the house. This is a high risk strategy and you may be forced into a corner. It also makes your loan extremely expensive because you will have paid maximum interest.

Some borrowers take out interest only mortgages and use the savings they make (from not making any capital repayments) to pay into an investment fund, with the idea being that the investment fund will rise more in value than the interest rate on your mortgage. If that happens you would have enough money to pay off the principal sum at the end of the term of the mortgage.

Individuals who expect their earnings to increase significantly, such as young professionals, or those starting their own businesses, may prefer a interest only mortgage at the start to reduce their monthly outgoings, but they then usually convert to a repayment mortgage once their income increases.

It should also be noted that because you are only paying the interest on your mortgage, you will be more affected by movements in interest rates by the Reserve Bank. If you have a tight budget this is another thing to bear in mind.

Private bank facilities - Some of the Private Banks in South Africa offer ‘facility type’ mortgages, and ‘one account’ home loans, whereby you have to pay in a certain amount every month but you can also withdraw that amount from the account the capital amount repaid every month as well . This makes it a very flexible mortgage, but it is a mortgage where you have to be very sensible, and strict with yourself. There also tends to be higher monthly charges for this kind of mortgage.

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How much will my interest rate be?

Mortgage interest rates - The interest rate of the loan you take out in order to buy your house is crucial. It will determine how much you can afford to borrow and therefore how much you can afford to spend buying your home.

Your mortgage consultant will be the best informed to advise you on the interest rate you are likely to pay. Your interest rate will depend on a number of factors such as the Loan To Value (LTV), which is the amount of money you are borrowing compared to the price of the house you are buying or own; your repayment compared to your income (the cost of your monthly mortgage repayment compared to the amount of your disposal income used to make those payments), the size of your bond and your credit profile, amongst a host of other factors.

It should be noted that the interest rate should not be the only factor that you look at when deciding which mortgage to choose. South African lenders are becoming far more innovative in offering different types of mortgage. These products are briefly explained in the next section.

How is the interest charged on mortgages?

In South Africa interest is generally charged daily on your mortgage, so payment immediately reduces the amount that you owe. With some lenders they will allow you to pay your mortgage repayments twice a month, this will dramatically reduce the amount of interest you will pay over the lifetime of your mortgage.  

Which type of mortgage is best?

As you might expect, there is no simple answer to this question. Most people will obviously want the cheapest deal they can get on their mortgage. But you may to compromise a little on cost in order to get something that is a little more flexible.

Fixed-rate deals are very popular in the rest of the world, and about 5% of South African mortgages are on a fixed rate. This is very low because the banks currently offer very uncompetitive rates for fixed mortgages due to the high risk from the volatile interest rates in South Africa. If you are on a tight budget then fixed rates can often be the best choice. If you have a little more room to play, a variable interest rate might suit you better. Currently, with one lender in South Africa you can get a mortgage with a combination of fixed and variable rates, allowing you to fix 50% of your mortgage, for example, and have the other 50% on a variable rate.
 
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What mortgage products are there?


a) Capital and repayment mortgage - a. Capital and repayment mortgage This is the most common form of mortgage and until two years ago was the only mortgage product available from the big four banks.

The mortgage is paid off over the lifetime of the mortgage. The repayments are made up of interest and capital repayments reducing the size of the mortgage. Capital and repayment mortgages can be over five to 30 years.

Important Factors

1) As there are no differentiators in this product the interest rate on it is the most important factor.

2) There are other products that can be added onto this such as a flexi facility or access bond, where you can ‘pay in’ and draw down lump sums at no cost. Your monthly repayments will only be on the mortgage amount outstanding.

Tips for the borrower

1) Over-payments - At the beginning of the 20-year mortgage, the majority of the borrower’s monthly repayment will be made up by interest payments with only a small proportion of the repayment reducing the capital amount. If the borrower overpays into their mortgage account every month it will dramatically reduce the duration of their bond, and save themselves a considerable amount of interest over the lifetime of their bond.

2) Increase affordability - Borrowers can also extend their mortgage to 30 years. As their monthly payments will now be less this will assist them in borrowing a larger amount. The borrower must be aware that because they are lengthening the repayment period, they will be paying more interest over the lifetime of their bond.

b) Interest only mortgage - This is a very new and slightly controversial mortgage. It is where the borrower pays only the interest charges on the home loan for 20 years and then have to repay the full capital amount at the end of the term.

This product is very common in more developed countries, and is particularly popular with young buyers and business owners. It should not be seen as a way of increasing the size of mortgage a borrower can get if they are a low-income worker.

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Important Factors

1) The borrower will be paying the maximum amount of interest and will not be making any contributions to reducing the mortgage.

2) Borrowers need to have a specific reason for using the interest only mortgage:

o To use as a facility (for wealthy individuals)

o They expect their salaries to rise considerably in future (to pay off the mortgage)

o They are paying into an endowment fund

o They will be renting out the property and looking to maximise their capital growth

Tips for the borrower

1) Overpayments and underpayments. As the borrower is only charged the interest on the mortgage, they can pay in lump sums to the mortgage and reduce their monthly interest charges.

2) Increase affordability. In certain circumstances this can be used to increase the borrower’s affordability. This should only apply to graduates or young professionals who are anticipating their income to rise significantly in the near future.

3) Buy to Let. This is a very tax efficient product for investors who purchase property to rent it out. This is due to interest repayments being ‘tax deductible’ from the rental income on the property. Therefore the borrowers pay the minimum amount of tax on their properties

c) Fixed (interest rate) mortgage - Fixed rate mortgages only make up 3% of the market at present, this is partly due to falling interest rates over the last eight years, making variable rate mortgages are more sensible choice for homeowners. Traditionally banks have only offered a maximum of 2 two years fixed interest rate, however new lenders in the market have started to offer five and even 20 year fixed rate deals.

The advantage of a fixed rate mortgage is that you know exactly what your mortgage repayments will be for the fixed rate period, which can help with your budgeting. However, as the fixed rate is higher than the current prime rate, if interest rates do not rise substantially during the fixed rate period, you will end up paying more for your mortgage.

Important Factors

1) Mortgages can be fixed for two, five or 20 years

2) Once entered into a fixed mortgage contract it is very expensive to get out of it due to the penalty fees the lender charges if you wish to exit the mortgage before the end of the fixed rate period

3) For two year fixed mortgages the interest rate will be above the current prime rate

4) If the borrower is fixing for two years and they have a current rate below prime less 1%, then interest rates would have to move dramatically (more than 2%) in the next two years in order for it to be worth their while

5) So borrowers need to be aware that interest rates would have to increase quite significantly for the fixed rate to be worthwhile

Tips for the borrower

1) Partial fix - With SA Homeloans borrowers can fix part of their mortgage. For example, they can fix 50% and have 50% on a variable rate. Therefore they can have a ‘partial hedge’ against interest rate movements

2) Why do you want to fix? – In the end it is you, the borrower’s decision to have a fixed deal, but it is important to establish why you feel a fixed rate mortgage is suitable for you. Factors which may affect your decision include:

o Being is in a ‘low salary sector’ (like teachers, nurses etc) where have a guaranteed repayment is beneficial o Being badly affected by the interest rate movements of the late 1990s and wanting security

o You are renting out your property and want stability so you can be certain of any shortfall between your rental income and your mortgage repayment

Note: You should be wary of taking out a two year fixed mortgage as they are very expensive and almost commentators believe that interest rates will not go up by over 3% in the next two years to make such a fix worthwhile. However, five and 20-year fixes have more merit for certain types of clients.

d) Access bond - Access bonds have been developed over the last few years and now almost all banks offer them. In addition to money required to buy your property, this type of mortgage also has a facility that allows you to draw or borrow an additional sum. It works very much like an overdraft facility on your bank account, but at the same interest rate as your mortgage, so it is therefore cheaper than an a normal overdraft. However, this additional borrowing is secured on your property, and the amount of additional money you can borrow will depend on your circumstances and will vary between lenders.

Such a facility is useful if you need to get extra cash to pay for renovations to your home, for example. However, you have to be quite strict with your money management to ensure that you can continue to pay your mortgage repayments as the new repayments for the additional loan.

The time limit on this facility is the original loan term that you agreed with the lender when you first took out your mortgage.
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Important Factors

1) Nedbank’s ‘Ned-revolve’ product is the only mortgage where you have to physically contact your bank to ask them to reduce your monthly repayments. With all other banks your monthly repayments will go up and down depending on the total amount of the mortgage and the additional amount you have borrowed.

Tips for the borrower

1) This is an excellent product for business owners, as it gives them the flexibility of an overdraft facility but at far cheaper rates than a business overdraft facility.

2) If you are looking to renovate your property, then the access bond is perfect. It allows you to pay for the work as and when it is done, without having to pay the interest on a full mortgage.

3) Borrowers should always take as high a ‘grant’ as possible, this means that even though you will only get paid the amount you have requested for the purchase of your property, the additional grant amount can be applied for later without having to go through credit checks and a full application again.

e) 'First time buyers' mortgage (108% LTV)

This product was introduced several years ago to assist first time homebuyers to get into the property market, even if they did not have a deposit or funds to pay the purchase costs. Even though the purchase costs, such as transfer duty, have been reduced considerably in the last few years, banks are still offering this product to help first time buyers better afford the costs involved. Some banks will even consider a 108% mortgage even if you are not a first time buyer
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Important Factors

1) This mortgage is generally only usually available for first time homebuyers, which also mean is it not available for joint buyers if one of them has had a home loan previously.

2) The interest rates are generally considerably higher for 108% mortgages, because the banks view this as a higher risk mortgage because the additional 8% is 'unsecured'.

Tips for the borrower

1) Although these bonds have a higher interest rate, if there has been good property growth and the value of your property has risen, after a year  you  can usually negotiate with the bank to reduce the rate as the LTV will have been reduced.

2) However, you should always try to put down some form of deposit, as it will lower your interest rate and your own risk.

f) 'Equity release' mortgage

This is a brand new product currently offered by just two lenders in South Africa, but Equity release mortgages have been introduced in other parts of the world over the last ten years with huge success.

Equity release is aimed purely at retired individuals that own their home and no longer have a mortgage. It is a method of releasing some of the equity or value of their properties, without having to sell their home or pay monthly instalments on a new mortgage. Consequently there is no income requirement as the amount you will be loaned will depend on the value of the property.

Equity release mortgages are most suitable for senior citizens who are asset rich but cash poor and are primarily used to support retirement income and pay for home-improvements and healthcare.

With equity release the bank lends the borrower a sum based on a percentage of the value of the property, so if the property is valued at R2 million and the borrower takes out a 25% LTV equity release mortgage, they would receive R500,000. This can be paid as a lump sum or as monthly payments.

Although the bank will now charge interest rate on the R500,000, the borrower does not have to make monthly repayments as they would with a normal mortgage. Instead, when the property is sold, either because the owners are moving or they have died, the bank will take what they are owed – the original lump sum plus interest – from the sale value of the property.

This does mean of course that the amount available to beneficiaries will be reduced, so surviving children and family would not receive the full sale value of the property. If the property is in joint ownership, the bank will only claim back what it is owed when both partners have died or the house is sold.

Important Factors

1) The bonded property must be the primary residence

2) Only for homeowners aged 65 years and older.

3) Minimum loan amount R250 000 (Nedbank)

4) LTV 45% maximum (Nedbank)

5) Either lump sum loan or monthly withdrawals, or a combination of both

6) No monthly repayments

7) Fixed interest rate of 1.95% above prime

8) Five year term with the option of a further grant (Nedbank)

9) Negative equity guarantee

Tips for the borrower

1) Carefully assess the impact of a reverse mortgage on your overall finances and estate planning

2) Equity release mortgages are better suited to high value properties

3) Reduce the effect of the high interest rate by taking the loan in monthly instalments as opposed to a lump sum payment – interest on a lump sum payment accrues more quickly

g) 'Building Bonds' and 'Future Use' mortgages

Building Bonds and Future Use mortgages are progressive home loan solutions that enable qualifying clients to register a mortgage higher than the current value of the property, creating a surplus that can be accessed at a later stage.

A Building Bond is used to finance the construction of a property on vacant land or additions and improvements to an existing property. Usually full funding of the vacant land is available up front; thereafter progressive payments are structured to fund each stage of the building process up to a maximum of six payments.

In the case of Future Use mortgages, the surplus funds can only be accessed if the value of the property has increased, unless the funds are being used for home improvements.

Important Factors

1) These cater to a borrower’s specific building or future changing needs

2) Offers time and cost savings on single bond registration that covers future requirements

3) Some lenders defer repayment instalments until building is completed

4) Other lenders offer interest only repayments whilst building is in progress

5) Monthly instalments are based on total funds paid out, not total registered value

Tips for the borrower

1) Before applying for a building loan ensure that you have building plans (preferably council approved) and a building quote from an NHBRC approved builder.

2) If repayment is deferred until building is completed, interest on progress payments is debited to the loan account, which will effect the final progress payment. To eliminate a possible shortfall on the final progress payment it is recommended that borrowers make additional repayments into the loan account whilst building progresses.

h) 'One Account' mortgage

In effect ‘One Account’ mortgages are the same as standard bank accounts, but with a large overdraft facility secured by the borrower’s residential property or properties. The ‘One Account’ caters for all of the borrower’s banking, borrowing and savings needs.

The qualifying criteria for ‘One Accounts’ are quite stringent and, as such, they cater specifically to higher income individuals wanting the convenience and cost effectiveness of a single banking facility that services all of their banking needs.

The interest rate charge is similar to a standard mortgage and is therefore cheaper than a bank overdraft or other forms of borrowing such as loans and credit cards. If you qualify for such an account, you have to be strict with your cash flow management to be able to meet your financial commitments and not accrue charges or high interest rates.

Important Factors

1) Minimum annual income requirements

2) Minimum facility size

3) Structuring fees apply

4) Private Banks take various assets as security – fixed property, investments, share portfolios and policies

5) Consolidate all forms of debt at the lowest possible interest rate – single credit facility at home loan rates

6) Keep the same facility for life even if you change properties

Tips for the borrower

1) Do your homework to ensure that a simple access bond would not better suit your needs – single account facilities are geared towards specific clients

2) Single facility accounts are expensive to set up due to the structuring fees and higher monthly administration fees

3) By consolidating all your debt into a single facility you run the risk of losing your home if you are unable to service all of your debt

4) Ensure that all your income is paid into your ‘One Account’ as interest is calculated on your daily balance and this saves you the maximum amount of interest

5) Surplus funds deposited into your single facility effectively deliver tax free returns


How do I get a mortgage?

Applying for a mortgage through a broker- So, you've found out about interest rates, costs and stamp duty and you still want to buy that house? OK, well unless you're very wealthy you'll need a mortgage. You can apply for a mortgage on the apply section of this website.

Once you've found the mortgage that suits you best, you can either apply through your broker, or to the lender directly. Your broker or lender will usually then email out some forms detailing the home loan quotation and your details, which you will have to check and sign. You should aim to do this quickly as lenders normally state a time period during which they will guarantee the rate you have been quoted, meaning you will not be affected should interest rates rise. It will then be a case of waiting to see if the mortgage is approved, and then you can go ahead and start the house-buying ball rolling!

In fact you should contact your broker to be pre-approved before you even start house hunting. With pre-approval you will find out just how big a mortgage you are likely to get, which will help you decide how what kind of property you can afford. Although pre-approval is not a guaranteed mortgage, it does put you in a strong position when you go house hunting as it shows the seller that you are a serious buyer. It can also help you negotiate a good price on the property as the seller will be keen to do a deal with a buyer that has finance in place.

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Help For First-Time Buyers

It is harder to get on the property ladder today than it has ever been. But there are many ways first-time buyers can get a leg up.

Of course, if this is your first house purchase this is all pretty daunting stuff. It can also be extremely expensive as you have to find an awful lot of money. Luckily, you will find a bit of help as lenders usually give preferential Loan to Value mortgages (108%) to First Time Buyers.

The size of mortgage that you are eligible for is all dependent on your financial situation. You need to plan this in advances to make sure your finances are in the best possible condition for when you apply for a mortgage. Start these preparations at least three months before you apply for a mortgage. You will need to try and reduce your monthly expenses to a minimum to prove to the lender that you can manage your expenses, and try and save as much as possible for the additional costs of purchasing your home. Make sure than any old debts are paid off and do a credit check (use the credit check at Justmoney.co.za to make sure there are no ‘gremlins’ lurking there that may surprise you.)

Once you have done all that, fill in an application form and a consultant will contact you. Aask them to calculate how much you can afford before you go out house hunting.

But if you are having trouble finding the cash to consider buying in the first place, here are some ideas that may be useful:

Get help from your parents - This is not an option for some people, but, according to a recent report in the UK, two-fifths of First Time Buyers (FTBs) are getting help from their parents -- usually in the form of a deposit. If your parents can afford to give or lend you a lump sum to help you bridge the gap between the price of a home and a mortgage you can support, then do not turn down such an offer.

Alternatively, they may be happy to buy th e house with you on the understanding that you will buy them out of their share later when you can afford it, or that they get a share of any growth in value when you sell up. You could ask them to act as surety for the mortgage, either jointly or on their own, but that would mean a big commitment on their part -- if you fail to meet your mortgage payments they'll be lumbered with the payments.

Buy with a friend - You might not be able to afford to buy by yourself, but you could possibly manage it if you went halves or even thirds with a friend or two in the same position. This method is becoming increasingly common - after all, if you have been renting a flat with your best mate from university for the last couple of years, why not continue sharing, but in your own home.

There are major considerations though (such as what happens when one person wants to sell, but the other does not) so make sure you agree on a legal basis the ground rules before signing on the dotted line. Each of you should have your own solicitor to prepare legal agreements to ensure you are fully protected from your co-owner should the friendship go pear-shaped.

You should usually also make sure you buy your property in a company name, as although it is more expensive to set up, it does mean that you can ‘sell your share’ when you want to move on. It will also mean that your share will become part of your estate if you should die, rather than passing automatically to your co-owner.

Get a longer mortgage - The usual length of a first-time mortgage is 20 years which sounds like a scarily long period of time. But it's not unusual for people to upgrade to their next home a few years later and take out a new mortgage for exactly the same length of time. So the idea of looking for a 30-year mortgage in the first place, or maybe even longer, need not be dismissed out of hand. It also means that you can afford a bigger mortgage as your repayments will be lower due to the longer time period.

The crucial thing to look for is that, even if there is an initial lock-in period, you subsequently have the facility to overpay when you can afford to. The longer the mortgage, the more you will pay overall so your ultimate aim should be to overpay when feasible thus reducing the length of the mortgage term.

Remortgaging - Remortgaging your home is one of the best ways to save several thousand Rands a year.

To be able to call that home your own, you will have to pay off that pesky mortgage. And although for most of us this is a 20-year deal, careful management of your mortgage could mean you get rid of that millstone years earlier, whilst saving yourself a packet in interest.