Before submitting your home loan application, grow your deposit for better interest rates.
Despite South Africa’s tough economic climate, 2018 has seen an increase in the number of people applying for home loans. This is according to a new report released by the National Credit Regulator (NCR).
It is true that many banks now offer 100% home loans which don’t require a deposit, but remember the bigger your deposit, the smaller your home loan repayments will be. By reducing the amount you need in a bond loan, you are also reducing the amount of home loan interest you pay on the purchase. While African Bank doesn’t offer home loans, we do offer a range of saving and investment products that could help you save towards a deposit for your new home.
Look at these two examples:
- If you take a mortgage for R890, 000 with 0% deposit at 10.25%, your monthly repayment would be R8737. The total repayment at the end of the 20 year term would be R2, 096,880.
- If you take a mortgage for the same amount but with a 10% deposit, your monthly repayment would be R7863 and the total repayment at the end of the 20-year term would be R1, 887,120.
Click here to view an infographic that breaks it down for you. It’s clear to see that growing a deposit is a good way to save in the long run!
Having a deposit will also improve your chances of having your home loan application approved and will put you in a better position to negotiate a more favourable interest rate.
Home loan deposit options
It’s important to do your research into the right savings and investment option for your goal. Look at timeframes and find out about interest rates, notice periods, tax-free returns and so on. Don’t be afraid to ask for advice and find what works for you. Having your own home is very rewarding, but making sure the repayments don’t cripple you financially is key.
Here, we break down African Bank’s Savings and Investment products, so you can choose the best option to help you save for your deposit. With African Bank currently offering SA’s Best Interest Rate, these options will help you grow your money:
- Fixed Deposit: Invest a lump sum for a fixed term of three to 60 months. This investment offers guaranteed returns with fixed interest rate for the duration of the investment.
- Notice Deposit: With this Investment you can grow your money with extra deposits from as little as R100. Choose your notice of withdrawal for either 7, 32 or 90 days.
- Access Accumulator: This investment is unique to the South African market, allowing you to earn market leading interest rates that increase monthly over a maximum term of 24 months. You have the flexibility to withdraw at any time. No notice period, no penalty.
- Tax-Free Investment: With a minimum deposit of R100, you deposit up to R33 000 each year, without being taxed on your earnings from this investment. An added bonus is that while your original interest rate will never drop, you can benefit if the interest rate increases.
Additional factors to consider when applying for a home loan
- Check your credit profile before applying. A bad credit score will impact your bond application. (Read: How to improve your credit score)
- Decide whether or not to apply for a 30-year or 20-year home loan. You will end up paying much more on a 30-year term home loan, but the monthly repayments might be more manageable.
- Know what you’re in for. Many of South Africa’s property websites have a bond calculator – use this handy tool to get an idea of monthly bond repayments.
- Be honest when declaring your monthly expenses in your bond application. Banks may be tending towards leniency, but they’re far from reckless. Honestly declaring your monthly expenses illustrates your ability to service a loan.