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5 Tips to help you buy your own home

By Faeza
30 May 2016

Here are a few tips on how to get started when you’re ready to take the next steps towards owning your home, and how to make your bond work for you.

“[Buying a] home is one of the most important investment decisions you can make. If you have saved sufficiently for a deposit and secured lending on your home, that’s a great achievement in itself. However, many South Africans struggle with understanding how they can best pay off their bonds, and provide a stable home for their families,” says Sydney Sekese, Certified Financial Planner® (CFP®) at FPI.

South Africa’s financial freedom is close to Sekese’s heart. In this article, she provides a few tips on how to get started when you’re ready to take the next steps in owning your home, and how to make your bond work for you:

1. When to take the plunge

It’s ideal to buy your first property when you have enough money saved to buy the property in cash, but very few of us are in a position to do this, and most people require a 20- to 30-year loan from the bank. In this case, you must ensure you have enough saved to at least afford the deposit, or down payment, as this is required by most, if not all, banks.

Make sure you are able to afford long-term debts (with changing interest rates), that you have an emergency fund, and that you are in a generally healthy financial position before making such a large purchase. Insurance becomes a huge factor in this decision, from protecting your home with comprehensive home owner’s insurance, to protecting your ability to earn an income.

2. Faster is better

You may be tempted to try and reduce the monthly payments by extending the bond repayment period, or electing to pay back only the interest portion of your bond for a period of time. However, this can end up costing you more in the long run.

Try and pay more into your bond each month and hopefully settle the outstanding debt in a shorter repayment period as the compounded savings are significant. Consider that if you pay off your home over the 20-year period, it will most likely end up costing you more than double what you signed for.

 

3. What are the benefits of this?

When you invest, you benefit from compound interest. So if you are able to pay off your bond quicker, the benefit is then compounded in your favour.

Take for example a R1-million bond over a 20-year repayment period. The normal monthly payment would be R9 150, assuming a prime lending rate. If you were to increase your monthly payment by R1 000, it would result in a total savings of R316 000 and shave four and a half years off the repayment term.

4. What is a variable loan?

You can select either a fixed or variable interest rate over the bond finance term. A fixed rate means that your monthly repayment stays the same. This is a good decision if you feel that interest rates are going to rise in the future. The banks know this, so their quotation will factor this in and it’s usually a higher rate.

It is usually most affordable to choose a variable loan with your interest rate linked to the prime interest rate. At the time of your loan application, you should try and negotiate the lowest rate possible, as even a small difference in the rate can make a significant impact when compounded over the long term.

5. Use your bond to finance other purchases

This can be a good option for people who have an access facility on their home loan. This is because the loan interest rate is lower than any vehicle finance would be. This is fine, as long as you are disciplined and you pay the car off over the same period as you would finance it and not simply add debt to your bond over the rest of its term.