Types of home loans
Prospective South African property buyers have several options when it comes to the various bond types available. Generally speaking, South African bond companies offer a range of bond solutions, many of which can be tailored to meet your individual needs. As with most other types of loans, the bond interest rate is one of prospective buyers' primary considerations. Below follows an overview of the types of bonds available in SA:
First-time Buyers' Bonds
Buying property is an expensive exercise. Especially for first-time homebuyers who may not yet have accumulated a large amount of capital in the form of savings, the up-front costs associated with buying a property has historically been quite prohibitive. This situation created a market depamdn for so-called no deposit bonds among first time buyers.
Numerous bond companies have in the past therefore started offering so-called first-time homebuyers' bonds. Some bond companies call these 100% bonds, 108% home loans or 110% bonds, as the total value of the bond granted is up to 8% or 10% more than the total value of the property purchased.
This is done in order to cover the bond origination and/or registration costs, effectively financing these up-front expenses as part of the principal debt.
Although this necessarily means that the lending institution is charging the new property owner interest on an additional sum, it nonetheless serves as the critical leg-up young people need to get into the property market. The Nedbank AlphaBond is a prime example of this type of branded offering. Its flexible qualifying requirements, including provisions for commission earners and the self-employed will also make this product attractive to freelancers and seasonal workers. It allows for accelerated payment lump sum deposits, and makes provision for the registration of a second bond.
Similarly, Absa's MyHome Home Loan, for example, features a 5-year, fixed-rate option and a 50% discount on conveyancing fees – certainly worth checking out. Most first-time bonds also offer homeowners the option of a loan account linked to their bond. This type of line of credit makes the homeowner's bond equity – the part of the debt they've already paid off – available as a revolving line of credit.
Ordinary Residential Bonds
Ordinary or residential bonds are a basic yet flexible bond solution that can be tailored to individual homebuyers' needs. Residential bonds can be used to finance an existing completed residential property such as a flat, freestanding house or duplex-type apartment, or a vacant residential plot or erven.
Most ordinary bonds feature 20 or 30-year terms (the allowed bond repayment period), and tend to be granted for 100% or less of the total bond value. Ordinary bonds can feature a variable interest rate, a fixed interest rate, or a combination thereof, known as a variable bond rate.
Fixed-rate bonds offer homeowners a way of managing their risk exposure – especially during times of economic uncertainty. Depending on your financial profile and a range of other application-specific considerations, some bond applicants are able qualify for a below-prime interest rate.
Conversely, most fixed-rate bond companies are secured above the prime lending rate, as the financial institution issuing the bond needs to hedge their own risk exposure. If the prime interest rate remains constant from the point you fix your home rate onwards, you'll end up spending more on this option; if it goes up and passes the rate at which you fixed, you'll end up spending less at the end of the day.
In order to sweeten the deal, some bond companies allow homeowners to unfix their bond interest again, should interest rates come down. Be sure to speak to an authorised financial service provider if you are uncertain as to which bond type would best meet your property buying needs.
Variable Interest Rate Bonds
Variable-rate bonds, as the name suggests, are linked to the prime lending or ‘interest rate'. When the interest rate goes up, so does your bond interest rate, and vice versa. Your monthly bond repayments, in turn, will reflect interest rates hikes or reductions by going up or coming down.
This will also see your outstanding bond amount going up or coming down, depending on whether rates go up or come down.
In contrast to new or first-time homebuyers' bonds, the buy to let home loan is generally granted for the purchasing of a second property, or residential property that is being purchased with a view of renting it out, rather than living in it.
To contact ooba bonds for a free bond quote or financial consultation, click here.
Pre Approved Bonds
Pre approved bonds give prospective homeowners the confidence to go househunting in the knowledge that their bond should be approved within a certain price bracket. Looking at your income, monthly expenses, credit record and a rane of factors relating to your financial profile, bond originators calculates a bond amount that complies with the National Credit Act; an amount that you can afford to repay, that is. Find out more about getting your bond pre-approved here.