Is a mortgage and a loan a good idea?

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Johannesburg - Is it legal for the bank to give you an 80 percent home loan and 20 percent personal loan to cover the 100 percent? Most banks are doing this. Does the NCR/NCA allow this? - Moses Kalane

Answer: The National Credit Regulator replied that it was not illegal for a bank to offer an 80 percent home loan and a 20 percent personal loan. The way it chose to lend the money was only restricted by the National Credit Act in that it was obliged to determine whether the applicant could afford the loans. “In terms of Section 82 of the National Credit Act the credit provider (bank) can determine for itself the evaluative mechanisms or models and procedures to be used in meeting its affordability assessment obligations… to prevent reckless credit.

The NCA does not require consumers to pay a deposit to secure a mortgage or any other asset. The credit provider may require the consumer to pay a deposit as part of its normal credit-granting policies and procedures.”

We then asked Standard Bank what the financial implications of this scenario were for an applicant. How much is a home loan applicant likely to pay for a R1 million mortgage bond? We also asked for a calculation for a R800 000 home loan and a further R200 000 personal loan to make up the difference needed for an 80 percent bond.

Response: From Steven Barker, head of Homeloans at Standard Bank South Africa:

It’s important to remember that short-term lending, such as personal loans, have maximum loan amounts and they would take into account your income and expenditure. The loan term is shorter as well, so the monthly repayment could be higher than if that amount was included in a home loan over 20 years. The upside of a short-term loan is the total cost could be R100 000 less.

- R1m home loan over 20 years at a rate of 9 percent would cost R2.1m over the term, and the monthly instalment is R8997.26 a month.

- R800 000 home loan over 20 years at a rate of 9 percent would cost R1.7m and instalment is R7197.81 a month.

- R200 000 personal loan over 72 months at 12.50 percent would cost close to R300 000 and the starting instalment would be R4 100 a month.

The difference in cash flow would be R2 300 extra in repayments a month, by opting for a personal loan instead of saving for the deposit. As a general rule, the choice on whether to save or lend for the deposit is an individual approach each customer would need to determine, based on their financial situation and personal needs. - Saturday Star

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