Guiding consumers since 2009

How to get the right home loan

By Staff Writer

A while ago we reported that home loan grants have increased by 20% year on year. However, the number of applications being declined has also increased according to estate agents Engel & Völkers (EV). Bank statistics have shown that over the last few months 100% home loans have dropped by 20% of all applications approved.


Banks are tightening up their lending criteria and it’s important to know what you are in for if you want to step onto the housing ladder. Becoming a successful homeowner means doing your homework, knowing your credit status and being in control of it. Banks are even more cautious now than what they were, so it’s best to be prepared.   


But if the idea of getting a home loan frustrates you more than doing your taxes we’ve consulted an expert and asked him to answer the most pertinent questions you would have:


Should I shop around or stay loyal to my bank?
While banks have tightened up their lending criteria, that doesn’t mean you shouldn’t shop around for a good deal. “Banks are no longer the homogenous institutions that they used to be, so one should shop around and compare prices.  One should try to secure the most favourable interest rate,” says Clive Pillay ombudsman for Banking Services.


Besides the interest rate, Pillay stresses that other costs should be borne in mind as well. These costs include conveyancing costs, deeds office fee, initiation fee charged by the bank, transfer duty, insurance premiums as well as monthly bank administration fee.  “All these factors need to be borne in mind as well as the fact that banks work on the 30% income rule.  This means that banks will not usually grant a home loan if the monthly repayments exceed 30% of your income,” adds Pillay.


So what interest rate are banks charging?
Pillay says this varies considerably depending on the individual. “Banks do an affordability assessment. Banks do what they call pricing for risk. The higher the risk the higher the interest rate. If one has a good credit record with stable secure employment, one is likely to secure an interest rate that is lower than someone else who has a bad credit record with an unstable work record,” he says.


How do banks decide whether to give you a loan?
Banks will assess you based on how well you’ve dealt with debt in the past. If you’ve been late in paying debts or have any court judgments chances are very slim that they will award you a home loan.


Is it possible to get a 100% mortgage?
With house prices still high, few people find it possible to put together the ‘ideal’ 10% or even 5% deposit required by the bank. “But the reality is that it is highly improbable that one will be able to secure a 100% mortgage.  Most institutions require a deposit. The extent or the amount of the deposit varies,” says Pillay.


 

Recent Articles

Featured Part 3: Debt rehabilitation explained

In the third part of our Debt-ucate series we explore which debt rehabilitation solutions are available, and what they entail.

What impact does compound interest have on your savings and debt?

Interest plays a big role in your savings and debt. It determines how much you’ll receive for keeping your money in the bank and it also determines how much you’re going to pay your creditors. But what power does compound interest have on your finances?

Times are tough, but keep your debt under control

While the whole world is going through a rough patch, you may also be feeling the pinch. With the country in crisis, it may be difficult to keep up with your debt instalments. However, abandoning your debt obligations is not the solution.

Debt Series Part 2: Interest rates - unpacked

In the second part of our Debt-ucate series we explore interest rates –from how to get a better rate to what influences it, and how this affects the cost of your debt.

Deals

Chartered Finance Institute Free Course

Price: Available on request
When: Daily
Where: Online

Takealot Lockdown Specials

Price: Available on site
When: Daily
Where: Online

Woolies Winter Sale

Price: Available on request
When: Daily
Where: Online