Three steps to a sound home loan choice

There are so many different home loan options available these days that home buyers often feel at a loss to compare the various offerings and choose the one that will best meet their needs.

However, says BetterBond CEO Rudi Botha, prospective buyers actually need to make just three basic decisions before they apply for a home loan, the first being what percentage of the purchase price they should save up and pay as a deposit on their new home.

“There are many advantages in paying a substantial deposit, including the fact that it increases the chances of your home loan being approved, and that home sellers will thus be more willing to take your offer to purchase seriously and negotiate price with you.

“Paying a deposit will usually also ensure that your home loan application is processed more quickly, and if you apply through a reputable bond originator like BetterBond it could even mean that you are able to obtain an interest rate reduction that will lower your monthly home loan repayments even further.”

The extent of any interest rate concession, he notes, will depend on the size of the loan you apply for, relative to the value of the property and your credit risk profile. The maximum concession is usually applicable when the “loan to value” ratio is less than 80% – or when you pay a deposit equal to at least 20% of the purchase price and have a great credit record.

The second decision to make, Botha says, is whether to apply for a variable or fixed interest rate home loan. If you choose a variable rate option, you run the risk of interest rates rising and pushing up your monthly repayments. “But while a fixed rate option will allow you to count on your bond repayments staying the same for a certain period, you will not derive any benefit should interest rates fall during that time.

“What is more, the banks which are prepared to offer fixed-rate loans will usually only do so at interest rates well above prime, which will not only increase your minimum monthly instalment but also increase the total amount of interest payable on your home over the life of your bond.”

Thirdly, you will need to decide where to apply for your home loan. And fortunately, he says, this is no longer a daunting proposition, thanks to the existence of companies like BetterBond, which is SA’s biggest bond originator* and offers home buyers a free home loan pre-qualification and application service.

“Applying for your loan through BetterBond means that you can skip all the anxiety that used to be associated with the home loan application process. We guide consumers through the pre-qualification process to ensure that they meet all the banks’ credit, employment and affordability criteria, and to establish their purchasing capacity so that they don’t waste time looking at homes they will not be able to afford.

“Then once they have made an offer to purchase, we not only assist buyers to prepare their applications properly but also motivate those applications to lenders to ensure that each borrower obtains the best possible home loan interest rate. What is more, our service is absolutely free.”

*The BetterBond Home Loans statistics represent 25% of all residential bonds being registered in the Deeds Office and are thus a reliable indicator of the state of South Africa’s residential property market. 

Article Courtesy BetterBond Blog