Affordability is the one thing that is on the top of the mind of many people when it comes to buying a home, despite a rise or drop in interest rates, according to Carl Coetzee, CEO of BetterBond.
“If you are thinking of buying a home in the next few months, your first decision will be how much you can afford to pay each month on a bond,” Coetzee said.
Here are five ways people can afford their dream home by reducing their monthly bond payments:
Work with a bond originator
Coetzee said that people should work with a bond originator who will apply to multiples bank on their behalf for a competitive interest rate.
Save up for a deposit
A deposit will change the gross monthly income that is required to qualify for a bond and will decrease the monthly bond repayments as well as the interest payable over the loan period.
According to Coetzee, banks look more favourably at clients who can manage their money, and a deposit suggests to the bank that a client is a lower lending risk.
“A deposit will therefore make a significant difference when banks decide whether to approve or decline a bond application,” Coetzee said.
Reduce your loan repayment period
People that pay extra money into their bond could cut down their repayment period.
Coetzee said: For example, on a R2 million bond at the current prime lending rate of 10.5%, a payment of R1 000 extra a month could reduce your loan period by almost three years and save you R461 187 in interest.“
Good credit score
Banks are more likely to offer people a competitive interest rate if they have a solid credit score and present less of a lending risk.
Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said: “For the best chance of a home loan approval with the best possible interest rate, you want your credit score to be somewhere between 614 and 999.”
“Most people who are considered to have good credit have a credit score between these ranges.”
Fixing your interest rate
“While the choice is a personal one, it’s worth noting that fixed rates are generally higher than the base or prime lending rate and can only be negotiated once the bond has been approved,” Coetzee said.
“Also, the period over which you can fix the interest rate on a bond repayment is a maximum of 5 years.”
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